Few people are aware of the need to have a director’s consent in place BEFORE incorporating a company.
This arises from the terms of s201D Corporations Act. This section provides as follows:
CORPORATIONS ACT 2001 – SECT 201D
Consent to act as director
- A company contravenes this subsection if a person does not give the company a signed consent to act as a director of the company before being appointed.
- The company must keep the consent.
- An offence based on subsection (1) or (2) is an offence of strict liability.
This section sets out two requirements and two offences – the need to obtain the consent before incorporation and the keeping of a record of the consent by the company.
These offences are what are known as strict liability offences, requiring no proof of criminal intent, with the onus of proof on the company.
A breach of subsection (1) imposes can result in a potential penalty of 3 months imprisonment and 10 penalty units (a penalty unit is $180.00) and a breach of subsection (2) (failure to keep the consent) can result in 5 penalty units.
The amount of annual incorporations is increasing substantially each year – by about 10% – but rare is it that the person or company ordering a company has a consent in advance from the proposed directors.
Obtaining consent from your intended director
The package of documents which you obtain from Reckon docs contains a form of consent which can be used (there is no specific required form) but it is prudent to obtain written confirmation from the person agreeing to be a director before instructions are actually given to Reckon to incorporate.
An email from the proposed director agreeing to be appointed before instructions are given to Reckon to incorporate, for example, is acceptable evidence but it is prudent to obtain photographic identification from the person in addition so that you can confirm that the person issuing the instruction is the actual person sending the email.
It is unfortunately becoming increasing regular that individuals contact ASIC advising they had never provided their permission to be included with a company, and ASIC are then requesting evidence from the company to provide the evidence of consent.
Invariably the client then refers the matter to the accountant or financial planner who incorporated the company “pointing the finger” if there is a lack of consent held by the company.
This can result in prosecutions. There have been a series of actual prosecutions under the section over the last few years.
A common scenario is a spouse claiming zero or no knowledge of the existence of the directorship or a person claiming lack of knowledge when an entity becomes insolvent.
When the package of documents is received from Reckon, either in ZIP file or in hard copy, it is imperative that the consent form is printed off (or extracted from the hard copy folder as the case may be) and the form signed and a copy kept at the same time of photographic identification of the person giving the consent.
With these simple steps you can head off an ASIC investigation and/or the very expensive defence of a prosecution under the section.
Keep learning and check out our article on What is the role of a director in a small business company.