Mr Wang from Shanghai plans to set up an import–export company in Melbourne. He and his wife both live in China and ask whether the two of them can be the only directors. The short answer is no. An Australian proprietary limited company (Pty Ltd) must have at least one director who ordinarily resides in Australia; every director must apply for a Director ID before being appointed; and once appointed, a director carries legal duties and may in some situations be personally liable for the company's debts.
Key points
- A Pty Ltd needs at least one director and one shareholder, and at least one director must ordinarily reside in Australia; a company secretary is optional.
- Every director must apply for a Director ID through Australian Business Registry Services (ABRS) before being appointed; the ID is kept for life.
- Directors must act with care and diligence and in good faith, and must not misuse their position or company information (Corporations Act 2001).
- Directors can become personally liable if the company keeps incurring debts while insolvent, or fails to pay certain tax and superannuation amounts.
- Where there is more than one shareholder, it is wise to have a shareholders' agreement in addition to the company's constitution.
1. Basic steps to register a proprietary company
Companies are registered by the Australian Securities and Investments Commission (ASIC). The application needs the company name, a registered office address in Australia, the principal place of business, details of directors and shareholders, and the share structure. Once registered, the company receives an Australian Company Number (ACN), and then applies for an Australian Business Number (ABN) and a Tax File Number (TFN), and registers for GST if its turnover reaches the threshold. ASIC registration and annual review fees are adjusted each year, so check the current official fees.
The company can be governed by the replaceable rules in the Corporations Act or by its own constitution. Where shareholders contribute differently, have special dividend arrangements, or include family members, a tailored constitution is usually more flexible.
2. The resident director requirement
The Corporations Act requires a proprietary company to have at least one director who ordinarily resides in Australia; a public company needs at least three directors, at least two of whom ordinarily reside in Australia. Whether someone “ordinarily resides” here depends on where they actually live, not just their citizenship or visa: a temporary visa holder who has lived here for a long time may qualify, while a permanent resident who lives overseas may not.
Overseas investors commonly ask a relative or business partner living in Australia to act as director, or use a commercial nominee director service. Keep in mind that every director carries the full legal duties; there is no such thing as a “name only” director. The person taking the role will usually want access to information, a say in decisions and an indemnity, and these should be agreed in writing beforehand.
3. Director ID
A Director ID is a unique identifier for each director, issued by ABRS, and must be applied for before a person is appointed as a director. People with Australian identity documents can usually apply online; those overseas without Australian documents generally need to apply on a paper form with certified copies of identity documents, which takes longer, so allow time. Failing to apply as required is an offence that can attract penalties. ASIC has announced that from 1 July 2027, companies must provide directors' IDs to ASIC at annual review or when reporting changes to directors.
4. Directors' main legal duties
- Care and diligence: pay attention to the company's business and finances as a reasonable person in the same position would.
- Good faith: act in the best interests of the company and for a proper purpose, and avoid conflicts of interest.
- Do not improperly use your position, or information obtained as a director, to gain an advantage for yourself or others.
- Prevent insolvent trading: do not let the company incur debts when it is, or would become, unable to pay its debts as they fall due.
- Keep proper financial records and keep the company's details up to date with ASIC.
These duties apply equally to family companies. If, for example, a husband is the sole director but his wife actually runs the business, he is still responsible for the company's compliance and cannot rely on “not knowing” as an excuse.
5. When directors become personally liable
Limited liability does not mean directors are never personally liable. Common situations include: the company continuing to trade while insolvent; the company failing to pay PAYG withholding, GST or the Superannuation Guarantee, in which case the Australian Taxation Office (ATO) can issue a Director Penalty Notice, and if the amounts were not reported on time, placing the company into liquidation may not remove the liability; and directors having signed personal guarantees for the company's lease, loans or trade credit. A new director may also become liable for some debts that existed before their appointment, so check the company's tax position before accepting the role.
6. Practical checklist before you register
- Decide the shareholders, shareholdings and share classes, and consider whether a trust or holding company should hold the shares.
- Arrange at least one director who ordinarily resides in Australia, and record their rights and indemnity in writing.
- Have every director obtain a Director ID first; overseas directors should prepare certified documents early.
- Choose between the replaceable rules and a tailored constitution, and consider a shareholders' agreement.
- After registration, obtain an ABN and TFN, register for GST if needed, open a bank account, and set up the share register and minute book.
- Diarise the ASIC annual review date and have your accountant regularly confirm tax lodgements are up to date.
Frequently asked questions
I live in China. Can I be the sole director of an Australian company?
No. A proprietary company must have at least one director who ordinarily resides in Australia. You can be a director together with someone living in Australia, but that person will carry the full duties of a director.
Do I apply for a Director ID after the company is registered?
No. The law requires you to apply before you are appointed as a director. Paper applications from overseas take longer, so start as soon as you plan to set up the company.
Once I resign as a director, does all my liability end?
Not necessarily. Breaches of duty during your time as director, personal guarantees you signed, and some tax liabilities can still be pursued after you resign. Review the company's position and deal with guarantees in writing before you resign.
Does the company need a company secretary?
A proprietary company does not have to appoint a secretary, but if it does, at least one secretary must ordinarily reside in Australia. Many small companies have the directors handle ASIC matters or ask their accountant to do so.
Can I use a professional nominee director service?
Yes, but a nominee director carries the same legal responsibilities, so they will usually charge a fee, require an indemnity and expect to take part in major decisions. Understand the scope of the service and how it ends before signing up.
Chua Tan Associates has practised in Melbourne since 1990, advising businesses and investors in Mandarin, Cantonese and English on company set-up, buying and selling businesses, commercial leases, contracts and commercial disputes. For help, call 03 9602 3988 or contact us online. We can meet at our Melbourne CBD office or by video.
This article is general information only and is not legal advice.
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