Stepping into a director’s seat in your family’s business can feel like a natural progression, a show of trust, a way to contribute, or simply the next chapter in a shared legacy. But many new directors, especially in family companies, make a dangerous assumption: that family businesses are more relaxed, less risky, and governed by informal rules.
That assumption can cost you your finances, your freedom and your family relationships.
In Australia, family business directors are legally bound by the same duties and risks as directors of public companies. You can be personally liable for decisions made on your watch, even if you’re unpaid, uninvolved, or “just helping out.”
Here are three real-world inspired case studies that show how things can go wrong, and what to do instead.
Case Study 1: Trading While Insolvent – “Dad Would’ve Wanted Us to Push Through”
Jason joined the board of his family’s third-generation construction business. When finances got tight, the directors, mostly cousins, agreed to keep trading in the hope of turning things around. “We’ll get through this,” they said. “It’s what our grandfather would’ve done.”
But love for the family legacy didn’t protect them from the law.
The company was insolvent, and the directors knew, or should have known it. ASIC investigated. Jason and others were found to have breached their duties under the Corporations Act 2001 (Cth) by allowing the company to trade while insolvent. They were held personally liable for a portion of the debts.
Lesson: Emotional loyalty doesn’t override legal responsibility. If you’re a director, you’re obligated to make hard calls, even if they go against family wishes. Call us on 1300 654 590 or email us for advice on making the right choice under your circumstances.
Case Study 2: Industrial Manslaughter – “We’ve Been Doing It This Way for Years”
Mei was a new director in her family’s wholesale supply business. Her father told her not to worry about health and safety policies and protocols. “We’re not some big corporation. We don’t have the resources for all that paperwork. Everyone knows how to use the forklift.”
There was no traffic management plan, no training, and no proper safety records.
A young casual worker was fatally injured by an unlicensed forklift operator. The directors were investigated for industrial manslaughter. Along with her distress about the tragic death, Mei was shocked to discover she could face criminal prosecution.
As a board member, she had a duty to ensure safe systems of work, and failed to do so.
Lesson: Informal family culture and size of business doesn’t excuse non-compliance. Directors must actively ensure the business is legally and safely run, or face devastating consequences. Call us on 1300 654 590 or email us to keep your business compliant.
Case Study 3: The Accidental Director – “It Just Made Sense at the Time”
When Anna’s husband registered his restaurant business, he added her as a co-director, not for any operational role, but as a symbolic gesture. Like many in family businesses, they saw it as a sign of shared commitment: “We’re in this together, so let’s both be listed.” Anna wasn’t going to be involved in the day-to-day running of the company, but it felt right to include her.
Years later, the company was sued over significant wage underpayments. To Anna’s shock, she was named as a co-defendant. Despite never making a business decision or signing a contract, her status as a director meant she shared full legal liability.
The couple had assumed their family home was safe, since it was in Anna’s name, and she was not actively involved in the business. But they hadn’t realised that listing her as a director undermined the very protection they were trying to build. As a legally responsible party, Anna’s personal assets including the house, were exposed and ultimately lost in the settlement.
Lesson: If your name appears on the corporate register, you carry the full weight of director responsibilities. Title alone is enough. Asset protection needs more than good intentions, it requires deliberate legal structure and expert advice. Call us on 1300 654 590 or email us to ensure your protection before you bare these responsibilities.
Checklist: Before You Say Yes to a Family Board Seat
Being a director of a family business does not exempt you from the same responsibilities a director of a large public company has.
Governance & Duties
- Apply for your Director Identification Number (DIN)
- Read the company constitution, board charter & shareholder agreements
- Understand your duties under the Corporations Act, WHS, and Fair Work laws
Asset Protection
- Structure personal assets (e.g., trusts, separate ownership) with legal advice
- Take out or review Directors liability insurance
- Avoid “silent” directorships, understand what your signature means
Risk & Compliance
Check the business is complying with:
- Work health and safety law
- Payroll, tax and employee entitlements
- Environmental or licensing obligations
- Establish formal governance processes, even in small businesses
- Join director education programs (e.g., AICD)
- Schedule regular legal and accounting reviews
Conclusion: It’s Not Personal, It’s the Law
Becoming a director in your family’s business is an honour, but it comes with serious obligations. The law doesn’t care if you’re related. ASIC, the courts, and regulators judge directors by their actions, not their intentions.
If you want to protect your family, your future, and your legacy, govern like a professional. That means asking hard questions, learning your duties, and never assuming family equals safe. Call us on 1300 654 590 or email us today to discuss how to structure your family business properly and implement risk management strategies.
The information contained in this post is current at the date of editing – 30 May 2025.
