The governance guide for family businesses part 3: Directors and the board

The governance guide for family businesses

Below is part 3 of our governance guide for family businesses. To read the other parts of this series, click the links below:

 

Becoming a director in your family’s business is a sign of trust, a way to contribute, and the next chapter in a shared legacy. Yet many family directors make a dangerous assumption: that family businesses are more relaxed, less risky, and governed by informal rules around the kitchen table. 

That assumption can cost you your finances, your freedom and your family relationships. In Australia, family business directors face the same legal duties and risks as directors of public companies, with personal liability that extends well beyond the boardroom. 

 

What directors do (and why it matters) 

The board oversees and governs the company’s management. Proprietary companies need at least one director, with at least one ordinarily residing in Australia if there are multiple directors. Directors can only act collectively as a board; your individual role is to participate in board decision-making. 

 

The big picture responsibilities 

Your key roles include protecting members’ interests and other stakeholders, developing policies to achieve company goals, providing performance feedback to senior management (especially the CEO), ensuring decisive action, and overseeing the family’s involvement in the business.  

The board advises management on vision, strategy, growth plans, competitive positioning, resource development (human, financial and physical), strategic relationships and succession. You should concentrate on big issues facing the company, avoiding day-to-day operational matters – that’s management’s domain. 

 

Executive vs non-executive directors 

Executive directors are company employees elected to the board. Non-executive directors aren’t employees and ideally bring independence from the company and its owners. While not legally required, best practice recommends appointing non-executives for breadth of professional experience and expertise. 

Both carry identical obligations under the Corporations Act 2001 (Cth) (the Act). Don’t assume a non-executive or “advisory” role shields you from liability. 

 

Director fiduciary duties and legal obligations 

Directors owe the company a fiduciary duty of care. You must act honestly, in good faith and to the best of your ability in the interests of both the company and its members. The Act imposes specific civil obligations reflecting these common law duties. 

You must discharge duties with the care and diligence a reasonable person would exercise, act in good faith for proper purposes, avoid using your position or information to gain personal advantage or cause company detriment, and notify other directors of material personal interests when conflicts arise. 

Beyond the Act, over 700 laws can make directors personally liable for company actions, covering employment, work, health and safety, taxation, environmental law and Australian Consumer Law. Most require some culpability if you deliberately or recklessly fail your duties. 

 

Practical duties directors must perform 

If your company has a constitution, it specifies director powers and duties. Under the Act, primary duties include actively participating in board meetings, reporting to members, assessing how actions affect company performance, keeping member registers (may be delegated), maintaining signed minute books recording proceedings and resolutions, and keeping financial records enabling accurate assessment of financial position for at least seven years. 

You must prevent insolvent trading (including paying dividends, buying back shares, or reducing share capital when the company can’t pay debts). Large proprietary companies (read here to learn what defines a large proprietary company) must prepare annual financial and directors’ reports and have them audited. 

 

The consequences of getting it wrong 

Breach your statutory duties and you face personal civil or criminal sanctions. Criminal consequences apply if you breach duties recklessly or intentionally dishonestly. This means significant fines, imprisonment up to 15 years, or both. 

Civil consequences include declarations of breach, fines which can reach over $1.65 million, disqualification orders preventing you managing companies, and compensation orders requiring you repay company losses from your breach. 

Directors may be held personally and jointly liable when companies can’t pay debts as they fall due. Australian courts have fined directors millions for failing to prevent insolvent trading. 

The Act prohibits companies from insuring directors against wilful breach of duty. 

Learn more about asset protection in our article on limiting liability is not enough – you also need asset protection. 

 

Before you accept a family board seat 

Being a family business director doesn’t exempt you from responsibilities directors of large public companies face. Before saying yes, you need to:  

  1. Apply for your Director Identification Number (DIN); 
  2. Read the company constitution, board charter and shareholders’ agreements; 
  3. Understand your duties under the Act, Work Health & Safety (WHS) and Fair Work laws; 
  4. Structure personal assets (trusts, separate ownership) with legal advice;
  5. Arrange directors’ liability insurance; 
  6. Check compliance with work health and safety law, payroll obligations, tax and employee entitlements, environmental or licensing requirements; 
  7. Establish formal governance processes; and  
  8. Schedule regular legal and accounting reviews.  

 

How we can help protect family business directors 

As advisers to business owners and successful families, we help family directors navigate governance risks while protecting personal assets. We review your structure, draft compliant board charters and indemnities, implement asset protection strategies, establish formal governance frameworks, and advise on your specific duties and liabilities. 

The law doesn’t care if you’re related. ASIC, courts and regulators judge directors by actions, not intentions. Govern like a professional by asking hard questions, learning your duties, and never assuming family equals safe.  

Call us on 1300 654 590 or email us to discuss how to structure your family business properly and implement risk management strategies.  

Continue to Part 4: Management and executives.  

 

The information contained in this post is current at the date of editing – 23 April 2026.

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