Company director duties in Australia: roles, liability and removal

_{Written by upcover's editorial team · Updated November 2026}

Company director duties in Australia include care and diligence, good faith and not misusing position or information under the Corporations Act 2001, as explained by the Parliamentary Library.

Directors also have "a legal obligation to prevent insolvent trading", according to ASIC.

Key takeaways:

• "Company officeholder" refers to two roles, director and secretary.
• A proprietary company needs at least one director who normally lives in Australia.
• Public company members can remove a director by resolution "despite anything in" the company's constitution, under the Corporations Act.
• Most officeholder changes go to ASIC within 28 days.

Company director duties at a glance

Many company director duties come from the Corporations Act, with ASIC and the ATO explaining how they apply in practice.

Company director duties and where each one is set out

What does a company director do in Australia?

"The directors of a company are responsible for managing its business," according to ASIC. It adds that "Most directors of small proprietary companies have hands-on responsibilities".

The replaceable rule in section 198A says "The business of a company is to be managed by or under the direction of the directors". A director makes "major decisions on the company's behalf" and is "legally responsible for making sure the company complies with the law".

Who can be a company director?

All company officeholders must be at least 18, and "Directors must apply for a director ID before they are appointed", according to ASIC's officeholder guidance.

ASIC's main eligibility and minimum rules include (non-exhaustive):

• Proprietary companies "must have at least one director who normally lives in Australia".
• "All public companies must have at least 3 directors (not counting alternate directors)", and "At least 2 directors must normally live in Australia".
• "A company must get and keep your written and signed consent before you become a company director or secretary."

"You cannot be a company officeholder if you are currently bankrupt", or if you are "covered by a personal insolvency agreement". Convictions for "fraud or other offences involving dishonesty" can rule someone out until 5 years after conviction or release from prison. ASIC also "may disqualify a director" in some cases.

upcover's guides explain criminal records and company directorship and adding a director to a company.

What are company director duties in Australia?

Company director duties include care and diligence, good faith and not misusing position or company information. ASIC adds that officeholders follow "all the laws that apply to your company, not just the Corporations Act". A lawyer can explain how these duties apply to a particular decision.

Care and diligence and the business judgment rule

Under section 180(1), directors and other officers must exercise their powers with the care and diligence "that a reasonable person would exercise". The Parliamentary Library notes "A breach of this duty will not give rise to a criminal offence".

The business judgment rule in section 180(2) "operates only as a defence", according to the Parliamentary Library's guide. Its four conditions include making the judgment "in good faith for a proper purpose" and having no "material personal interest" in it.

Good faith, proper purpose and conflicts of interest

Section 181 requires directors to act "in good faith in the best interests of the corporation and for a proper purpose". ASIC's guidance is to "put the company's interests first, even if this conflicts with your own interests".

Diverting a business opportunity to yourself, or approving a contract with your own business without disclosing it, may raise these duties. ASIC asks officeholders to "disclose any material personal interests you have".

Misusing your position or company information

Directors, secretaries, other officers and employees must not improperly use their position or information to gain an advantage or cause detriment to the corporation. The Parliamentary Library says each of these duties "is a civil penalty provision".

Where dishonesty is involved, section 184 creates criminal offences, with "a maximum of 15 years imprisonment".

Who do company directors owe their duties to?

ASIC says "A company director's main responsibility is to act in the best interests of the company and its shareholders". The Parliamentary Library notes section 181 "is not concerned with the conduct of a director in relation to creditors".

Creditors come in through insolvent trading: "Compensation proceedings for amounts lost by creditors can be initiated by ASIC, a liquidator or a creditor", according to ASIC's insolvency guidance. Obligations to employees and customers may come from other laws, which upcover's guide to managers' legal obligations explains.

When can a company director be personally liable?

Directors can face personal consequences for breaching their duties, for insolvent trading and for some unpaid company tax and super. ASIC notes "a company director can be liable for certain debts of the company".

Penalties for breaching company director duties "include criminal charges that may result in fines and jail time". ASIC adds "You may be penalised even if you did not mean to do the wrong thing". A lawyer or accountant can explain the risks when a company is in financial difficulty.

Insolvent trading

"A company is insolvent if it is unable to pay its debts when they fall due," says ASIC. It tells directors: "Before you incur a new debt you must consider whether you have reasonable grounds to suspect" the company is insolvent.

Breaches "can result in civil penalties against directors", and "If dishonesty is found to be a factor", criminal charges may follow. ASIC adds that "you may be able to protect yourself from civil liability for insolvent trading by establishing a 'safe harbour'".

Director penalties for unpaid tax and super

The ATO can recover unpaid PAYG (pay as you go) withholding, GST and super guarantee charge from directors personally. Former directors can remain liable too. A director penalty notice must come first, and the ATO "can recover the penalty amounts from you 21 days after" issuing it.

New directors may avoid penalties due before their appointment if the company takes listed steps "within 30 days of your appointment". Resigning within that period may still leave them liable. upcover's guide to director liability as an employer explains penalty notices in detail.

Company director vs company secretary: who are company officeholders?

Company officeholders are directors and secretaries: directors make the major decisions, while "A company's secretary generally does not make major decisions", according to ASIC.

Company officeholders and the chair compared

Secretaries "have many of the same obligations as directors", and "If there is no secretary, the directors take on the secretary's responsibilities".

Chairman vs director: is a chairman a director?

Under the replaceable rules, the chair of directors' meetings is a director, because "The directors may elect a director to chair their meetings", according to ASIC. "The chair has a casting vote if necessary in addition to any vote they have in their capacity as a director".

A company can set different rules: "If you want to change some or all of the replaceable rules, your company must have a constitution". As a director, the chair carries the same director duties as the rest of the board.

Can a director borrow money from their company?

Director duties may apply when a company lends money to one of its directors. ASIC asks directors to "not harm the company or get an advantage for yourself or someone else".

In a private company, "A loan from a private company to a shareholder or their associate may be treated as a Division 7A dividend", according to the ATO. Repaying the loan, or making it a complying loan, by the company's lodgment day may avoid that. Lodgment day is the earlier of the company's tax return due date and the date it is lodged.

Division 7A terms for a complying loan include (non-exhaustive):

• a written loan agreement in place "before the company's lodgment day"
• interest each year at least equal to the Division 7A benchmark interest rate
• a maximum term of 25 years for some loans secured by a registered mortgage over real property, or "7 years for any other loan"
• minimum yearly repayments by 30 June, with any shortfall "treated as a Division 7A dividend in that income year"

An accountant or tax adviser can explain how Division 7A applies to a particular loan.

Can a director be removed from a company?

A director can generally be removed by the company's members under the Corporations Act. The process depends on whether the company is proprietary or public, and on its constitution. Members are the company's shareholders.

Removing a director of a proprietary company

Under the replaceable rule in section 203C, a proprietary company "may by resolution remove a director from office". It "may by resolution appoint another person as a director instead".

"The replaceable rules do not apply to a proprietary company with a sole director who is also the sole shareholder", according to ASIC.

Removing a director of a public company

Section 203D lets a public company remove a director by resolution "despite anything in" its constitution or an agreement. The notice of intention "must be given to the company at least 2 months before the meeting is to be held". If the company calls the meeting after receiving the notice, the meeting may be held less than 2 months later.

The director can put their case by "giving the company a written statement for circulation to members" and by speaking at the meeting.

Can directors remove another director?

In a public company, removing a director is a decision for members under section 203D. In a proprietary company, the replaceable rule leaves removal to a company resolution, unless a constitution sets other rules. Disputes between co-directors, particularly equal shareholders, are commonly a matter for legal advice.

How does a director resign?

When a director resigns, "the company must tell ASIC within 28 days", according to its officeholder change guidance. The person can lodge Form 370 and the company uses Form 484.

If ASIC is told after 28 days, "we will record the end date on the register as the date the changes were made".

"If you are the company's only director, you cannot resign or retire without another director to replace you. Instead, you may need to close your company."

What do directors need to do with ASIC each year?

ASIC sends each company an annual statement with its details and an invoice for the annual review fee. Directors also pass a solvency resolution, unless the company has lodged a financial report in the past 12 months.

Annual ASIC steps for directors include (non-exhaustive):

• Check the statement, which is "usually sent soon after the anniversary of their registration".
• Pay the annual review fee by the due date, "usually 2 months after the annual review date".
• Pass a solvency resolution within 2 months of the annual review date, unless the company lodged a financial report "in the past 12 months".
• Update company details "within 28 days of the changes occurring".

A solvency resolution "states whether the company can pay its debts when they are due". "If you do not complete these obligations on time, late fees will apply", and "In some cases, ASIC may consider deregistering your company".

Insurance to consider for company directors

Some companies arrange insurance that may respond to claims against directors personally, or against the business, about how the business is run. Cover depends on the policy and insurer you choose. Check the policy wording and its terms and conditions for what is and isn't included.

Insurance company directors commonly consider

Directors and officers insurance is designed to help protect directors and officers personally against claims about decisions they made in that role. Directors and officers insurance is available standalone from some insurers and often arranged as part of a management liability policy, which is usually broader. upcover's directors and officers insurance guide explains how a directors and officers policy may respond to claims.

Management liability insurance is a packaged policy of a number of insurance products, not one standard product, and it is typically offered in the Australian market as up to seven insurance products. Management liability insurance is designed to help protect a business and its directors, officers and managers against claims about how the business is run.

What is included, and what each section is capped at, varies between insurers, so always check with your insurance broker or the team at upcover. The directors and officers liability section of a management liability policy may respond to claims against directors, officers and managers personally for alleged wrongful acts in their management capacity. As a business, its board and its directors' risk grow, management liability insurance should be considered for the size and stage of the business.

For working directors, personal accident and sickness insurance is designed to provide benefits to help protect your income if injury or illness stops you working, depending on the policy.

What does management liability insurance commonly exclude?

Exclusions commonly include, but are not limited to:

• claims about professional services, which generally sit with professional indemnity (insurance designed to cover claims that your advice, service or work caused a client financial loss)
• penalties that cannot be insured at law, which vary by state and by penalty type
• deliberate wrongdoing by the person claiming cover
• insured versus insured claims, such as claims brought between directors
• claims by major shareholders (the ownership threshold can vary, commonly between 15% and 25%)
• contractual liability claims
• claims relating to employment benefits or entitlements, including redundancy
• matters known before the policy or the relevant section started
• claims connected with insolvency or inability to pay debts, which many wordings exclude
• injury to a person or damage to their property, which generally sits with public liability (insurance designed to cover claims if someone is injured or their property is damaged in connection with your business)

Important: This list is not exhaustive. Exclusions vary between insurers. Always refer to the policy wording and its terms and conditions for the exclusions that apply to you, and if you have questions you should speak to your insurance broker or the upcover team.

How upcover can help

upcover arranges management liability and directors and officers insurance for Australian businesses. upcover works with 80+ insurance partners and can arrange quotes from a range of insurers.

• 70,000+ businesses covered
• 4.9/5 customer rating
• Certificate of currency available once your policy is confirmed

You can request a quote for management liability insurance online or speak to an upcover team member.

Frequently asked questions

Can a company have only one director?

A proprietary company can have one director, provided that director normally lives in Australia. Public companies "must have at least 3 directors (not counting alternate directors)". A sole director cannot resign or retire without another director to replace them.

Do company director duties apply to small proprietary companies?

Company director duties apply to directors of small proprietary companies, because "officeholders have all the duties of company officers" under the Corporations Act. In small companies, directors often run the business day to day as well. A lawyer can explain how the duties apply to a particular company.

Does resigning as a director end your liability?

Resigning may not end a director's liability for earlier events. The ATO can recover director penalties from "a current or former company director". If ASIC is told more than 28 days after the role ended, it records the end date as the date the change was made.

Can a company secretary also be a director?

A company secretary can also be a director, according to ASIC. Proprietary companies can choose not to appoint a secretary, in which case the directors handle that role. Public companies must have at least one secretary who normally lives in Australia.

Do you need a director ID before becoming a director?

All directors of Australian companies need a director ID, according to ASIC. ASIC says "If you plan to become a director, you must apply for a director ID before you're appointed". Australian Business Registry Services issues director IDs, and each one is "a unique number that you keep forever".

Can a director be personally liable for company debts?

A director can be personally liable for certain company debts, including through insolvent trading and unpaid tax and super. Insolvent trading "can result in civil penalties against directors". The ATO can also recover unpaid PAYG withholding, GST and super guarantee charge as director penalties.

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_{The information in this article is general information only and does not take into account your objectives, financial situation or needs. It is not legal, tax or financial advice. Directors' duties and company obligations are set by the Corporations Act 2001 and explained by ASIC and the ATO. These rules can change, so speak to a lawyer or accountant about your situation. Before deciding whether a product is right for you, read the policy wording and its terms and conditions. For personal accident and sickness insurance, also read the Product Disclosure Statement (PDS), Target Market Determination (TMD) and Financial Services Guide (FSG). upcover arranges insurance products with selected insurers and underwriters and does not compare all general insurers or insurance products available in the market.}