I recently met with a client who was the sole director of a company turning over in excess of $10 million dollars. There were 9 shareholders in total, with my client being a majority shareholder.
I was concerned about the general lack corporate governance and reporting to the shareholders, as they only had 1 meeting per year, and were not furnished with very much information at all. I did not want my client to be breaching her directors duties to the shareholders.
Reporting Requirements to Shareholders
The Corporations Act provides for minimum reporting requirements, which are summarised as follows:
1. Section 314 of the Corporations Act provides that a company is required to provide its members with all of the following reports:
(i) The financial report for the year;
(ii) The directors report for the year; and
(iii) The auditors report on the financial report,
by doing any of the following;
(iv) sending the member a hard copy of the reports;
(v) if the member has elected to receive the reports as an electronic copy, then an electronic copy of the reports;
(vi) by making a copy of the reports readily accessible on your website;
(vii) by directly notifying, in writing, all members that a copy is accessible on the website, and specifying the direct address on the website where the reports may be accessed.
2. In addition, the directors are required to, on at least one occasion each year, directly notify in writing each member that:
(i) the member may receive, free of charge, a copy of the reports; and
(ii) if the member does not elect to do so, the member may access the reports on a specified website.
Meetings for Shareholders
In order to validly call a Shareholders meeting, at least 21 days notice must be given of the meeting to each of the shareholders entitled to vote at the meeting, unless the company constitution specifies a longer period of notice.
The notice should state:
1. The place, date and time of the meeting and the technology used to facilitate the meeting, if applicable
2. The general nature of the meeting’s business
3. The intention to propose a stated special resolution, if any; and
4. If a shareholder has a right to appoint a proxy, this must be stated as well as the procedures involved.
In managing the business of the company, each of its directors is subject to a wide range of duties under the Corporations Act and other laws. Some of the more important duties are:
1. to act in good faith;
2. to act in the best interests of the company;
3. to avoid conflicts between the interests of the company and the director’s interests;
4. to act honestly;
5. to exercise care and diligence;
6. if the company is in administration – to report to the liquidator on the affairs of the company; and
7. if the company is being wound up – to help the liquidator (by, for example, giving to the liquidator any records of the company that the director has).
Operating a company has very important obligations and these must be met by each of the Directors. If you have any questions or would like to discuss any aspect of your roles as a director, the governance of your company, or directors duties, please do not hesitate to contact me.