When establishing an Australian subsidiary, one of the key considerations is the appointment of directors. Directors play a crucial role in ensuring that the company complies with Australian laws and regulations, and their responsibilities are significant. This blog will provide an overview of the director requirements for an Australian subsidiary and the typical fees they charge.
Director Requirements for an Australian Subsidiary
1. Legal Obligation to Appoint Directors:
- Minimum Number of Directors – According to the Australian Corporations Act 2001, a proprietary company (Pty Ltd) must have at least one director, while a public company requires at least three directors. For a subsidiary, it is usually structured as a proprietary company, requiring a minimum of one director.
- Resident Director Requirement: One of the directors must ordinarily reside in Australia. This requirement ensures that the company has a local representative who can be held accountable for its operations and compliance with Australian laws.
- You need a director identification number (director ID) if you’re a director of an Australian company. This is required before you are appointed as a director of the Australian entity.
2. Director Responsibilities:
- Compliance: Directors are responsible for ensuring that the company complies with the Corporations Act, including filing annual returns, maintaining proper financial records, and meeting tax obligations.
- Fiduciary Duties: Directors must act in the company’s and its shareholders’ best interests, avoid conflicts of interest, and exercise due care and diligence in their decision-making.
- Reporting Obligations: Directors are also responsible for ensuring that the company adheres to financial reporting requirements, including preparing and submitting financial statements and annual reports.
3. Liability:
- Personal Liability: Directors can be held personally liable for the company’s actions, particularly if they fail to meet their duties or the company engages in illegal activities. This includes liability for debts incurred by the company if it trades while insolvent.
4. Australian Business Number (ABN) and Tax File Number (TFN):
- ABN and TFN Registration: Directors must ensure that the subsidiary obtains an ABN and TFN, which are necessary for tax and GST registration.
Fees and other costs charged by Directors
The fees charged by directors of an Australian subsidiary can vary significantly based on several factors, including the complexity of the business, the industry, the director’s experience, and the level of involvement required. Below are some general guidelines on what to expect:
1. Resident Director Fees:
- Basic Fees: For a resident director for a newly established subsidiary who provides minimal services, such as fulfilling the statutory requirements and attending periodic board meetings, fees can range from AUD 6,000 to AUD 20,000.
- Additional Responsibilities: If the resident director is expected to take on more active responsibilities, such as regular involvement in company operations, compliance monitoring, other compliance services or strategic decision-making, fees can increase from AUD 12,000 to AUD 40,000 per year.
2. Non-Executive Director Fees:
- Market Rate: Public company – Non-executive directors typically charge between AUD 30,000 to AUD 80,000 per year for start ups, depending on the size and complexity of the subsidiary. This fee covers attendance at board meetings, providing strategic oversight, and ensuring compliance with legal obligations.
- Industry-Specific Rates: In highly regulated or specialised industries (e.g., finance, healthcare, technology), fees for non-executive directors may be higher, sometimes exceeding AUD 100,000 per year.
3. Liability Insurance:
- Director and Officer (D&O) Insurance: It’s common for companies to provide D&O insurance to protect directors from personal liability. The cost of this insurance is usually covered by the company and can range from AUD 3,000 to AUD 20,000 per year, depending on the coverage, turnover and industry.
Considerations When Appointing a Director
- Local Expertise: When appointing a resident director, it’s important to select someone with a strong understanding of Australian corporate laws and regulations. This ensures that the subsidiary remains compliant with local requirements.
- Engagement Scope: Clearly define the scope of the director’s role, including expectations for involvement in the business, meeting attendance, and decision-making responsibilities.
- Fee Negotiation: Director fees are often negotiable, especially if the director is taking on additional responsibilities or if the company is in a start-up or early growth phase.
Appointing the right directors for your Australian subsidiary is a critical decision that can have significant legal and financial implications. Understanding the requirements and typical fees associated with directors will help you make informed choices and ensure that your subsidiary is well-governed and compliant with Australian laws.
If you’re looking for assistance in appointing directors or need further guidance on setting up your Australian subsidiary, feel free to contact us. At Abdera, we specialise in providing expert support to companies expanding into Australia, helping them navigate the complexities of local regulations and ensuring a successful establishment.
