It Depends – How many directors does my private company need?

In this edition of ‘It depends’, partner Scott Hay-Bartlem talks about how many directors a private company needs to have.

Video transcript

Hello and welcome to this It depends on how many directors does my private company need?

How many directors does my private company need?

Well, this is our first. It depends.

What does the law say?

So, the Corporations Act governs companies and for private companies, since about the mid 1990s, it has allowed you to run a private company with only one director. So, as far as the law is concerned, one director is your minimum.

What about my private company documents?

So, if your private company runs purely on replaceable rules, your one director is fine. Many private companies have a constitution or back in the really old days, a memorandum and articles of association. Now, more modern constitutions will allow you to run a company with one director, usually. But your older ones that were done before the mid 1990s, back when you had to have two directors, usually have minimums either it specifically says you must have two, or you need two directors to be a quorum. So, if you want to run your company on just one director, you’ll need to go back and check your private company constitution, memorandum and articles and make sure you can do it with one director.

Are there other considerations?

So, they’re the rules about minimum. Now you can have a lot more directors in your private company and commonly we’ll see two or three or four. Husband, wife, spouses, kids, all those kinds of things. You can have more directors. You just need to think about things like director liability, you know, things like insolvent trading, tax issues. Although a director is normally protected from liability, some of those things will go through. Banks will often want guarantees from all directors. So, commonly you don’t want any more directors than you have to in a private company. Also, bear in mind though that if your sole director suddenly dies, you end up with not having any directors, and you can’t do anything with your company until you take steps to appoint new ones. So, there’s pros and cons of having more than one director. In an asset protection strategy, you’d have as few directors as you can. There’s a few considerations.

Thanks for watching this version of It depends. If you’ve got any questions about company directors, how many, how they should look, please call one of our team.