Australia is well-known among the global business community for its friendly stance towards corporations. Companies from all over the world are attracted to our favourable economic and legislative environment. Accessing the best of what Australia has to offer to your business is often a simple process, though there are a few major requirements to doing business here. Establishing a compliant board of directors is one of the most important parts of coming to Australia. Australian law requires companies to establish certain directorial positions due to the important role they play in corporate governance.
The Role of the Board of Directors in Corporate Governance
Corporate Governance is a phrase that refers directly to the way a company is managed by its board of directors. A good board of directors makes every decision with respect to its impacts on employees, customers, suppliers, shareholders and other stakeholders. In large companies, a board rarely directs day-to-day work, instead focussing on supervising the business’ upper management to control how the company functions. In total, the role of the board of directors is to be responsible for running the company and creating a business that meets its goals and takes care of parties such as shareholders.
The Appropriate Board Composition
Boards of directors hold the most important position in a company, which makes it vital that the board is made up of the right participants. The composition of a board will often change across the life of a business. Early-stage businesses will have fewer directors, usually including the founders, while later-stage boards will include parties like the CEO or major investors. In most cases, boards are made up of an odd number of people to avoid tied votes in situations where each board member receives one vote.
The exact size of a board depends largely on the business’ needs. Larger businesses with more departments, activities and foreign branches will require more directors than smaller companies. Best practice dictates that boards should be made up of independent parties from a range of diverse backgrounds. Diverse board members bring a wealth of experience and knowledge that benefit the company in the long term.
Australia’s Board of Directors Requirements
Australia is known for being friendly towards businesses. Much of that favourable legislation is laid out in the Corporations Act 2001, which governs the information and operation of Australian companies. Due to the importance of having directors in a company, the Act lays out several minimum requirements for directorial positions, depending on the type of company you are running:
- Proprietary Companies. Proprietary companies are the most common business entities in Australia. They are small companies with fewer than 50 private shareholders. Proprietary companies are required to have a minimum of one director who lives in Australia (also known as a Resident Director). If the company has crowd-sourced its shareholders, it needs at least two directors, the majority of which must live in Australia.
- Public Companies. The larger of the two types of companies, public companies are free to trade on the ASX and publicly source shareholders and funding. Due to their larger size and complexity, public companies are required to have at least three directors and one secretary. At least two of the directors need to live in Australia.
If you are considering opening an Australian arm for an overseas business, it is important that you install local directors to avoid breaching the Corporations Act 2001. Companies that breach the Act often receive major fines.
Ready to do Business in Australia? Contact Australian Corporate Governance Today!
Bringing your company to Australia is the easiest way to access one of the world’s most stable and business-friendly economies. Complying with local company laws is a straightforward process, but it is important to ensure you have the appropriate board of directors in place. Australian Corporate Governance can help you establish your business properly, including appointing Resident Directors to oversee the company. Our network of consultants and directors are experienced and have the networks necessary to make your business a success. Get in touch with us today for more information or to find out how we can help your business.