Answering a few questions related to a Nominee Director/ Resident Director

Here we answer a few common questions related to a Nominee Director.

Being an overseas company, why would I need a nominee director to establish business in Australia?

Nominee Director services are necessary for the overseas companies setting up operations in Australia since:

Under the Corporations Act (2001), there are strict rules about the residency of directors:

>> Australian Proprietary Company (Pty Ltd) must have at least one director who is a resident of Australia.
>> Public companies (Ltd) must have at least three directors, two of which must reside in Australia, as well as a resident company secretary.

There are various legislative and operational aspects which require the expertise of the professionals to act as Nominee/Resident Director and add their expertise to the board.

What is the purpose of hiring a nominee director?

A nominee director looks after the best interests of an organisation. This puts the director in Fiduciary relationship with the organisation, which means that he or she has to avoid anything that can result in conflict between company’s interests and his or her own interests.

What are the responsibilities of a nominee director?

If an organisation is operating as a holding company or passive investment company, then the responsibilities of nominee directors are straightforward. On the contrary, if the company has an active trading business, the level of responsibilities will be relatively higher.

A nominee director will need processes and procedures to be in place to ascertain that the organisation remains solvent and adheres to local laws.

A nominee director will:

>> Monitor company’s solvency by reviewing periodic reports from accountant to make sure that the company is able to meet the debts when they are due.
>> Review business contracts and ensure that the company is able to adhere to the rules mentioned in the contract.
>> Oversee local banking arrangements.
>> Hire other advisors to ensure that the company can comply with local laws.
>> Ensure that the company adheres to local tax obligations.
>> Report to the non-resident owners about company’s affairs.

Does a nominee director have a Fiduciary duty to the nominating shareholder?

Just because a shareholder appointed a nominee director does not mean that the director has a duty to the shareholder. This does not mean that the shareholder’s interests will always be different from that of the company; in fact, most of the time they will dovetail nicely. But in case of different opinions, it is the duty of a nominee director to put the company’s interests first. Additionally, the nominee director cannot share confidential information with the shareholder that hired him or her.

Will the nominee director have to perform different duties if he or she is appointed by the nominating shareholder?

The simple answer is No. Be it resident directors or nominee directors, the best interests of the company matter the most. A shareholder who appoints a director and believes that he or she will act as their agent will be discontented.

Does a nominee director hold company shares?

The fact that a nominee director is almost always a non-executive director, he or she does not hold shares in the company.

Nominee directors are an important asset of your organisation, thus you should carefully choose who you want as your nominee director. The professional you appoint should know what is needed of him or her so that the company can comply with local laws and obligations. The director will also be authorised to handle company’s affairs. You need to ensure that you hire a person who can act properly in the interests of your company.

It is the duty of a nominee director to be a good professional – one who understands his or her duties toward a company. It is not to the owners or the shareholders, including the one who appointed him or her, the nominee director must work for the overall betterment of the company.

Jul 27 2016

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