A resident director usually fulfills just one specific role. And that is to meet the ASIC requirement that one director of a private Australian company must reside in Australia.
A private Australian Pty Ltd must have one director based in Australia. A public Australian Limited must have two directors residing in Australia.
So when an overseas business wants to expand into Australia but their staff on the ground don’t want to be directors for various reasons – for fear of a Director Penalty Notice for example – then this foreign business needs to find somebody else in Australia who is willing to become a director. And it is often accountants or lawyers who fulfill this role of a resident director. So worth finding out more about with Damien Lehmann of Andreyev Lawyers in Sydney.
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It all starts with the Australia Corporations Act 2001 (CA). Per s201A of CA 2001 an Australian company must appoint at least one director who is a resident in Australia.
The director doesn’t have to be an Australian citizen. He or she can also be a migrant with rights to live and work in Australia. For a public company (‘Limited’) you need at least two resident directors plus a third director, who can be from overseas.
It is easy to become a director. All you need is that you are 18 years of age or older and consent on paper to the responsibilities of a company director. That’s it. Anybody in the world – no matter where or who – can become an Australian director as long as they meet those two requirements.
But in addition, the company needs one director – or two directors if a public company – who resides in Australia. But the others can be wherever they are in the world.
For a foreign business expanding into Australia, the need for a resident director is a hassle though that they don’t face in other jurisdictions. In the United States, for example, you can set up a Limited Liability Company where all members reside outside of the US. However, you then need a registered agent in the US that takes care of the formalities. Same in the British Virgin Islands. And many other jurisdictions.
So in a way it has the same outcome. You need somebody on the ground where the company is. Be it as a resident director or as a registered agent.
In the eyes of ASIC, there is just one type of director. Either you are a director or you are not. But in practical terms, there are different types of directors and they overlap.
Executive v Non-Executive Director
An executive director is part of management, runs the business and implements the strategy formulated by the board of directors. They are employees of the company. The CEO, CFO, MD etc of a company are usually non-executive directors. They don’t have to be. But they usually are.
Non-executive directors have nothing to do with the day-to-day running of the business. Their role is to review, consider and direct. They become directors through a Letter of Appointment and receive a director’s fee for their services. The Chairman of a company’s board is usually a non-executive director.
Independent Directors v Not-Independent Directors
Non-executive directors are also often referred to as independent directors. As opposed to executive directors who have a job to do. But not all non-executive directors are independent. If a non-executive director for example represents a major shareholder to protect their interests on the board, they are not independent, but still non-executive.
Resident Director v Foreign Director
A resident director is the one that fulfills the requirement in s201A CA 2001 that at least one director – or in the case of a public company at least two directors – must reside in Australia. So a resident director resides in Australia while a foreign director doen’t.
A resident director can be executive or non-executive just as a foreign director can.
Resident Director v Nominee Director
Resident director and nominee director have slightly different meanings. A resident director resides in Australia and might be further involved in the company or not. The emphasis is that the resident director is in Australia.
A nominee director can be anywhere in the world. They often the resident director but don’t have to be. ‘Nominee director’ just means that the director serves their role in name only and has no other responsibility apart from signing relevant paperwork.
So while resident and nominee director often describe the same role, they don’t do so necessarily. A resident director might be more than just a mere nominee. And a nominee director might not reside in Australia.
Resident and nominee directors often offer further back office services, like virtual office addresses, tax and legal assistance and the lot.
If you agree to become a resident director, make sure that the entity has its management and directors insured. And keep a close eye on the entity to make sure they pay their tax debt and lodge on time and also – very important – comply with Fair Work regulations, environmental regulations and any other area that can give rise to a Director Penalty Notice. So make sure the Australian entity you are a resident resident director of is a good corporate citizen.
Disclaimer: Tax Talks does not provide financial or tax advice. All information on Tax Talks is of a general nature only and might no longer be up to date or correct. You should seek professional accredited tax and financial advice when considering whether the information is suitable to your or your client’s circumstances.
Last Updated on 18 April 2022