Monday, March 22, 2010

How many directors does it take to have a company ?

Last week, I further explored the issues that came out of a relatively common situation of a loan or unpaid present entitlement owed to a company, where that company was a trading entity.

As mentioned last week, one asset protection strategy that often makes sense on a number of levels is ensuring that the only directors of a trading company are those people who, commercially, absolutely must be a director.

Often, we find situations where, for example, a husband and wife are both directors of a company when only one spouse in fact needs to be.

As directors carry personal liability, this is unnecessarily risky.

While this issue can normally be very easily solved by simply resigning the relevant director and giving notification to the company and the ASIC - care must be taken.

In particular, all companies, until the late 1990s, had to have at least two directors (and, other than in very limited circumstances, all public companies must still have three directors).

Therefore, even though the Corporations Law has been updated for about 13 or 14 years now, there are many company constitutions (or as they were formally known ‘memorandum and articles’) that still require two directors.

If a director resigns in breach of the company constitution, there can be a series of Corporation Law issues that need to be taken into account. These issues can all be avoided by simply ensuring the company’s constitution is updated before the resignation takes place.

Until next week.

Matthew Burgess