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Directors’ Role in a Small/Medium Business – Part Three

Responsibilities of Directors

The Corporations Act identifies that directors have wide responsibilities relative to the operations of the company.  The key responsibilities of a director include:

  • Appointment of the Managing Director or Chief Executive Officer
  • Monitoring systems for:
    • asset acquisition
    • intellectual property development and protection
    • registration of patents
  • Accounting systems for
    • debtors
    • inventory
    • creditors
    • bank accounts
  • Workplace Health and Safety – has management introduced appropriate systems and is there a regular monitoring of the operation of those systems?
  • People/Fair Work Australia – the directors need to ensure that the “people policies” that have been introduced by management and approved by the Board of Directors are operating in an appropriate manner.
  • Risk Management – has management implemented an appropriate risk management review process for the business and is there regular monitoring on the effectiveness of the system?
  • Cashflow Management – is management monitoring the day-to-day investment in debtors, inventory, bank accounts in accordance with the policy signed off by the directors?
  • Environmental Issues – has management implemented appropriate systems to monitor the company’s potential responsibilities for the environment?
  • Financing Arrangements – bank negotiations, capital raising e.g. Crowd-Sourced Funding or Early Stage Innovation Company Equity Raising – do you need to consider these options?
  • Payment of Taxation – are payments being made on time?
  • Taxation Systems – is management responding to changing requirements from the Australian Taxation Office e.g. “single touch payroll”?
  • Payment of Superannuation – are superannuation contributions being made when required?
  • Customers – has management implemented appropriate systems for welcoming of new customers and keeping all customers aware of the products and services that the company can provide? Does the Board of Directors receive regular reports summarising the current situation with customers, particularly any complaints?

In summary, the director’s responsibility is to ensure that management has implemented appropriate systems for the monitoring of each of these items and for regular reporting to the Board of Directors that the systems are operating in the manner that was envisaged when the directors signed off on the individual policies.

Directors cannot sign off on a policy and then ignore what is happening on an ongoing basis.  Directors have a responsibility to monitor the company’s procedures to ensure that the system, that the board has approved, is operating satisfactorily.  If the directors observe that the system is not operating satisfactorily, it is then up to the directors to ensure that appropriate remedial action is taken to ensure that the systems are operating at a very satisfactory level.

If you would like to have a discussion with us relative to the responsibilities of directors, please do not hesitate to contact us.


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