By Adam Tims, Partner, Martin O’Connor & Partners
Inside Racing – April 2008
Part 1: YOUR COMPANY AND THE LAW
Many of you act as directors of companies, often as a single director of a family owned, private company. It is typical to be involved in a company simply because it is seen as an effective legal structure to hold and protect assets. It may also be seen as an important vehicle to minimise tax either by capping tax at 30% (current company tax rate in Australia) or acting as a Trustee of a tax effective trust. Regardless of the reason for your company’s existence, there are some onerous legal obligations that you should regularly consider in your capacity as a company director.
If you are a director or secretary of a small company, you need to follow the requirements set out in the Corporations Act 2001. The Australian Securities and Investments Commission (ASIC) is the company law watchdog.
What does the law expect of you personally?
You and any other directors will control the company’s business. Your company’s constitution or rules may set out the director’s powers and functions.
As a director you must:
- Be honest and careful at all times.
- Know what your company is doing.
- Take extra care if your company is operating a business because you may be handling other people’s money.
- Make sure that your company can pay its debts.
- See that your company keeps proper financial records.
- Act in the company’s best interests, not just in your own interest, even though you may have set up the company just for personal or taxation reasons.
What records must you make sure your company keeps?
As a director, the law makes you personally responsible for keeping proper company records.
You must see that the company keeps up-to-date financial records that:
- Correctly record and explain its transactions (including any transactions as a trustee), and
- Explain the company’s financial position and performance.
Each year you must:
1. Pay your company’s annual review fee
ASIC will send an annual Statement of Company Details to your company or its Registered Agent within two weeks of its annual review date.
The Statement of Company Details sets out the company’s details recorded in ASIC’s database, such as the names and addresses of its directors and secretary, registered office, principal place of business, ultimate holding company (if any), shareholders and other share details. If these details are correct and no other changes have occurred that require notification to be given to ASIC, then the director(s) need only pass a solvency resolution within two months of the review date and pay the annual review fee invoice that accompanies the Statement.
2. Pass a solvency resolution
A positive solvency resolution means that the directors are of the opinion that there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable. Notification of a positive solvency resolution does not have to be lodged with ASIC, but you must pay the company’s annual review fee. Payment of the fee is taken to be a representation by the directors that the company is solvent.
Summary
If you are a company Director you should be aware of the legal requirements in your capacity as Director. Next month we look forward to presenting Part 2 that focuses on Director’s duties when a company is unable to pay its debts.
As always we strongly recommend that you discuss this matter with your accountant as the circumstances and end tax result may differ on a case- by –case basis. This article is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, specific professional advice. No responsibility for loss occasioned to any person acting on or refraining from action as a result of this article can be accepted.