Many founders want to bring their adult children onto the board of the family company. Sometimes the aim is to prepare them to lead. Sometimes it is convenience: someone in Australia who can sign while the parents spend time in Asia. Either way, a directorship is a legal office with duties and personal liability, not an honorary title.
This article outlines in general terms, under Australian law, the corporate governance mechanics for growing family companies: appointing next-generation directors, advisory boards, board charters, independent directors, family employment and succession of control. Separate articles on our site discuss family governance and family constitutions, shareholders’ agreements and share classes.
Consider a hypothetical Melbourne trading company whose founder appointed his daughter as a director while he spent long periods in Shanghai. She signed documents but had little access to the accounts, he continued to make the decisions, and an uncle advised informally under the title of “advisory board chair”. When a tax debt arose, questions followed about who was responsible. The right approach depended on facts that needed advice.
Bringing children on as directors
Under the Corporations Act 2001 (Cth), a director must be an adult and must consent in writing. A person must also hold a director ID before being appointed; director IDs are issued by the Australian Business Registry Services and the requirement is enforced by ASIC. Under amendments to the Corporations Act, companies will also need to provide their directors’ IDs to ASIC from 1 July 2027. A proprietary company generally needs at least one director who ordinarily resides in Australia, which can matter when parents live overseas for part of the year.
Duties and liability
Every director, whatever their age or experience, owes duties including care and diligence, good faith in the company’s best interests, acting for proper purposes, and not misusing their position or information. Directors may also face personal exposure for insolvent trading, under the ATO’s director penalty regime for certain unpaid tax and superannuation (which can extend to some debts that existed before a new director joined), and as officers under work health and safety laws. A director who simply signs what a parent asks may not be protected by that fact.
The reverse also applies. A parent who steps off the board but still directs the company may be treated as a de facto or shadow director and carry the same duties. Questions worth considering include directors’ and officers’ insurance, a deed of access and indemnity, and whether the new director understands the company’s finances.
Advisory boards versus formal boards
A formal board holds legal authority under the constitution and the Corporations Act. An advisory board has no legal power: it advises the board or the owners. That flexibility makes it useful for bringing in outside mentors, senior family members or next-generation members before they are ready for directorship.
The distinction needs to hold in practice. An advisory board member who in fact directs the company may be treated as a de facto director. Written terms of reference, confidentiality, fees, conflict rules and a clear statement that decisions remain with the board can help keep the roles separate.
Board charters, delegations and related-party dealings
A board charter can set out the board’s role, the chair’s role, meetings, quorum, matters reserved to the board and how directors receive information. A delegations policy can record what management, often the founder, may decide alone, including spending limits and bank signing authority.
Family companies often deal with related parties: premises leased from a family trust, loans to family members, purchases from relatives’ businesses. Directors with a material personal interest generally need to disclose it. The member-approval regime for related-party benefits in Chapter 2E of the Corporations Act applies mainly to public companies, but in private companies directors’ duties and the constitution still govern these dealings. A policy on disclosure, approval by unconflicted directors and minuting can reduce later disputes. Loans to shareholders and their associates may also raise Division 7A issues, discussed in a separate article.
Mentoring the next generation into governance
Governance roles can be built in stages: attending board meetings as an observer, sitting on a committee or the advisory board, serving as a director of a smaller subsidiary, then joining the main board. Along the way, the next generation may benefit from understanding financial statements and directors’ duties, and from a mentor outside the family who can give candid feedback. In our view, governance works best as scaffolding: start simple and adjust as the family and business grow.
Independent directors
An independent non-executive director can bring objectivity and skills, help mediate between generations, and add credibility with banks and investors. Issues include whether the person is genuinely independent, what information they receive, remuneration, liability and insurance, and who holds the votes to appoint and remove them.
Linking to the family constitution
A family constitution usually carries moral rather than legal force. Where parts of it must bind, such as criteria for family members joining the board or an employment policy, they may need to be carried into the company constitution, a shareholders’ agreement or board policies formally adopted.
Employment of family members
Family members who work in the business are generally employees, with the same rights under the Fair Work Act 2009 (Cth), awards, superannuation and safety laws as anyone else. Written contracts and position descriptions help when a relative’s performance needs to be managed. Being a shareholder, a director and an employee are separate capacities that may be paid differently, through dividends, director fees or wages, and tax law may limit deductions for payments to relatives that exceed what is reasonable for the work.
Succession of control
Control and management are different. Control often sits with whoever can appoint and remove directors: the shareholders, or the appointor of a trust whose trustee holds the shares. Tracing that chain helps show where one person can act alone. Founder death or incapacity is a common gap. An enduring power of attorney may allow an attorney to deal with the founder’s shares, but generally does not allow the attorney to act as a director. A timetable for handing over the chair and executive roles can make the transition more orderly.
Questions to discuss with your adviser
- Does each proposed director understand the duties and liabilities involved?
- Who actually makes decisions, and does that match who is on the board?
- Should an advisory board come before, or alongside, the formal board?
- How are related-party dealings disclosed and approved?
- Who controls the appointment of directors, and what happens if the founder dies or loses capacity?
Frequently asked questions
Can my child be a director of my company in Australia?
An adult child can generally be appointed if they consent and hold a director ID. Whether it is suitable depends on their readiness and the company’s risks.
What is the difference between an advisory board and a board of directors?
A board of directors has legal authority over the company; an advisory board only advises and has no legal power.
Is an advisory board member liable like a director?
Generally not, but a member who in practice directs the company may be treated as a de facto director.
Every family’s situation is different, and the answer often turns on details. Book a consultation so we can review your documents and circumstances before you act.
How Chua Tan Associates can help
Chua Tan Associates is a family firm that has practised in Melbourne since 1990, and Justin Chua is a second-generation lawyer in it, so he understands the founder–successor dynamic first-hand. We act as ongoing corporate counsel to growing family companies and as a sounding board for the next generation on governance, preparing board charters, delegations, advisory board terms and constitution amendments. Justin is an Accredited Family Business Advisor and a Nationally Accredited Mediator, and trained in accounting (Bachelor of Commerce, accounting major). We work alongside the family’s accountant and lawyers in Asia, and advise in English, Mandarin and Cantonese.
Important: This article is general information only and must not be relied on. It is not legal, tax or financial advice, does not take your circumstances into account, and may not reflect changes in the law after publication. Laws of other countries may also apply. Do not act or refrain from acting on the basis of this article. Reading it or contacting us does not create a lawyer–client relationship. Please book a consultation for advice on your situation.
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Chua Tan Associates acts for families, executors, trustees and their professional advisers in estate planning, estate administration and estate disputes in Australia and across borders. To arrange a confidential consultation, please contact our Melbourne office on +61 3 9602 3988 or submit an enquiry. Advice is available in English, Mandarin and Cantonese.
Justin Chua (蔡智勋), lawyer and mediator, Chua Tan Associates, Melbourne. General information only, not legal or tax advice.
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