The directors of a charitable company are the group of people responsible for overseeing the company’s activities and making sure it works towards achieving its charitable purpose. They must also make sure the company meets its ethical, legal and financial obligations.
The ACNC calls directors ‘responsible persons’ or ‘responsible entities’.
Clause 38 requires a company to have at least three and no more than nine directors.
Public companies (including companies limited by guarantee) must have a minimum of three directors (under the Corporations Act) and at least two of those directors must ordinarily live in Australia. However, there is no legal maximum number of directors.
What is the right number of directors for your company?
When adopting the template constitution, consider how many directors is a good number for your charity. For example, nine directors may be too many for a small company to make decisions and operate efficiently. However, a board of three directors may not be able to manage all of the responsibilities of a larger company. If your company increases its members, revenue or activities, you may wish to amend the template constitution to have more than a minimum of three directors.
The maximum number of directors specified in the template constitution includes any additional directors who the directors may appoint.
Clause 39 – Election and appointment of directors
Clause 39 sets out a number of requirements for the election and appointment of directors. The requirements set out in this clause will help a company make sure that good practices are followed when directors are chosen, and that certain requirements in the Corporations Act are met.
Under clause 39, a person who wants to be a director must:
- be a member or a representative of a member of the company. This is not a legal requirement and can be deleted in clause 39.4(a) so that any person can be appointed or elected. However, if you include it in your constitution, directors will also be bound by the constitution as members. You may wish to change this if, for example, your group is a support group for people with a particular illness and you would like people without that illness to be eligible to be directors. If you do change this clause, you will have to remove clauses 42.1(d), 42.1(e) and 42.1(f) (see the guidance on clause 42)
- be nominated by two members or two representatives of a member, although this is not required for a current director who was nominated at a previous general meeting, and who has been a director since that meeting. The template constitution does not detail the process for nomination and it is up to the company to agree on the procedure. For example, the directors may make by-laws (under clause 59) which set out the procedure for nominations. This procedure may, for example, state that nominations must be in writing, signed by the two members (or representatives of members) and the candidate, and received by the company at its registered office no later than 5.00 pm on the day which is 30 days before the annual general meeting. This would then allow a list of the candidates to be sent to members with the notice of meeting. On the other hand, companies may decide to adopt a less formal procedure. It may be appropriate for companies with a small and active membership to simply verbally nominate the candidates (and second the nomination) at the annual general meeting, and
- give their signed consent to be a director before being appointed (as required under the Corporations Act).
A person who wants to be a director must not be ineligible under the Corporations Act or the ACNC Act (clause 39.4(d)). They must also meet the legal requirements for directors of charitable companies, which are that they:
- are at least 18 years old, and
- are not disqualified from being a director of a company or a responsible person of a charity under the Corporations Act or ACNC Act, unless they have been given permission to be a responsible person. Permission may be required from ASIC or the Federal Court (depending on the reason for disqualification) and/or the ACNC (under ACNC governance standard 4). For more information, see the guidance on clause 42(h) (when a director stops being a director).
Clause 39.3 sets out a requirement in the Corporations Act that members must appoint each director by passing a separate resolution at a general meeting. However, one resolution can be used to appoint all of the directors if the members first pass a resolution which says that the appointments can be voted on together, and no member votes against that resolution. The reason for this procedure is that a member may want to vote in favour of the appointment of one director, but against the appointment of another director. In that case, the member should be able to vote on separate resolutions for the directors.
Because general meetings may be held using technology (under clause 25), directors can be elected in various ways, for example, by using an online poll during an annual general meeting that is held by web conference.
Clause 39.5 allows the directors to appoint a director to fill a casual vacancy (if, for example, a director resigns during their term of office) or appoint an additional director (if, for example, the directors consider that another director is needed before a general meeting can be held to appoint that director). These directors must resign at the next annual general meeting, but they can then nominate and be appointed by the members at that meeting.
The Corporations Act does not require a general meeting to be held to elect a director, but it is good governance to have something as important as the election of a director decided by members at a general meeting.
You may want to add extra requirements for directors of your charity in the constitution, or have a policy which sets out the ideal mix of skills and experience you will seek to have on the board for good governance. You can then appoint or seek nominations for people with these skills and experience.
Clause 40 – Election of chairperson
Clause 40 requires the directors to vote for one director to be the company’s ‘elected chairperson’.
Alternatively this could be a decision of the members at the annual general meeting. See the guidance on clause 26.
Clause 41 – Term of office
Clause 41 deals with the term of office for directors, that is, the length of time they are elected or appointed for, and how and when they are elected or re-elected. It provides for a system of ‘retirement by rotation’, where each year at least a third of the directors resign and can be re-elected. This reduces the risk of a complete replacement of all the directors in one year and prevents the company losing knowledge and experience.
It is good practice (but not a legal requirement) for directors to be re-elected periodically and to only serve for a maximum length of time. This allows the company to benefit from having a range of people with different skills, experiences and methods on the board.
Length of term of office
Clause 41 sets out when directors must retire and how directors can be re-elected.
Generally, a director’s term of office will be three years. This length of time (rather than, for example, one year) is likely to allow the company’s board of directors to be more stable and experienced and make long-term plans for the charity.
Some directors must retire annually
Casual directors and additional directors appointed by the directors (clause 41.1(a)) must retire at each annual general meeting of the company (see clause 20). They can be re-elected as a director at that meeting.
Retirement by rotation
At each annual general meeting, at least one third of the other directors who have been directors for the longest time must retire (clause 41.1(b)).
For example, if there are six directors, the two directors who have been directors for the longest time must retire. If there are three directors who were all appointed at the same time and therefore have all served for the longest, only two directors must retire. In this case, the director who must retire must be decided ‘by lot’ (under clause 41.2). ‘By lot’ means by random selection. For example, you may write the relevant directors’ names on pieces of paper, put the pieces of paper in a hat and pull a name out of the hat to decide who must retire.
Maximum term of office
Under clause 41.6, a person can be a director for a continuous period of nine years. If they want to be a director for longer, the members must pass a special resolution (see clause 70).
Clause 42 – When a director stops being a director
Clause 42 sets out when a director stops being a director, other than when their term of office finishes under clause 41.
Clause 42.1(a) covers written resignation.
Clause 42.1(c) allows a director to be removed by a members’ resolution. It is important to follow the procedure in section 203E of the Corporations Act if this occurs.
Under the Corporations Act, directors of a public company cannot remove a director or to require a director to resign.
Attention - Important information!Clause 42.1(d), (e) and (f) should be deleted if you do not include clauses 39.4(a) and 39.5(a) on election and appointment of directors, which require the director to be a member or a representative of a member.
Clause 42.1(g) sets out that a person stops being a director if:
- they do not attend three directors’ meetings in a row, and
- they do not have approval from the other directors.
If directors participate in directors’ meetings, it may help to meet ACNC governance standard 5, which requires charities to take reasonable steps to ensure that responsible persons meet their duties. A director can still be absent from directors’ meetings and continue to be a director if:
- they tell the other directors before the directors’ meetings that they will absent from the meetings, and
- the directors resolve to accept the absent director’s apology.
However, it is important for directors to be actively involved in the management of the company and they should not miss meetings without a valid reason.
Under clause 42.1(h), a person is usually ineligible to be a director of a charitable company if they:
- are disqualified from being a director under the Corporations Act (under Part 2D.6)
- have been suspended (and the suspension is still in place) or removed as the responsible person for that company under Division 100 of the ACNC Act, or
- are disqualified from being eligible to be a responsible person under ACNC governance standard 4.
In some cases a person who is ‘disqualified’ may still be eligible to be a director if they are given permission by the ASIC Commissioner or the ACNC Commissioner, or both, if required.
For more information, see our guidance on disqualification from being a responsible person.
See ASIC’s guidance on: