Often we meet people who’ve taken the leap and are operating their businesses through a company; but who (apart from listening to the initial advice on why a company structure was best) have little understanding about ongoing governance.
What is ‘governance’? I hear you ask. Simply, it’s how you operate and manage your company, and the key checks and balances you put in place to do it properly.
As a director, you have the power to manage your company. Alongside this power are corresponding duties. Think of these duties as your ‘Director’s Rules’ and consider them often. A breach of these duties has the potential to end in personal liability – ouch!
Your duties as a director include the duty to:
- act in good faith and in the best interests of your company (this is subject to any qualification stipulated in your company’s constitution);
- exercise your powers for a proper purpose;
- comply with the Companies Act 1993 and the company’s constitution;
- not trade at the risk of any creditors (this is known as reckless trading);
- exercise care, diligence and skill;
- disclose any conflict(s) of interest; and
- not use or disclose any company information unless for company purposes.
Where circumstances arise that trigger a warning bell about any of the above duties, you are best to get appropriate legal advice. It’s better to act early, than to put the issue under the bed, continue on and be held personally liable down the track (especially since you were probably advised to trade as a company for the benefit of limited liability in the first place).
Hold on, what about all the paperwork involved? Yes, managing a company does impose compliance requirements on the retention of paperwork. Generally, you must keep paperwork at the company’s registered office (not in a box in your garage, unless it is the registered office) for at least seven years. This includes your director(s) and shareholder(s) resolutions, interests register and share register. Uploading changes to the Companies Office Register online does not negate your obligation to keep a physical share register. You have not only a statutory duty to keep paperwork, but if you retain documentary evidence of your decision and why you reached it – all the better to protect your position.