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What SMBs need to know about the new Director ID requirements

As of November 2021, directors of all Australian companies will need to apply for and verify their identity as part of a new statutory requirement to have a Director Identification Number (Director ID). Director IDs will attempt to improve director identification and prevent illegal phoenixing activity.

The new law applies to all companies, including SMBs, and if you don’t comply, you could be faced with financial and legal repercussions. Directors who fail to apply within the time frame (one year for existing directors and 28 days for new directors) could face fines of up to 5,000 penalty units or up to $1.1 million. That’s why it’s important to start the application process now to avoid setbacks.

Here are some tips and aspects of the new legislation to be aware of.

What is it, and why does it matter?

In plain English, this law means that any person who is a director of a company or body corporate is an ‘eligible officer’ who will need to apply for a Director Identification Number.

Think of a Director ID like a driver’s license. If you have a driver’s license, you’ve completed all the necessary checks and balances to drive on our roads legally. The same is true for Director Identification Numbers. It basically proves that a director is ‘who they say’ and are legally authorised to hold their position. Once a director has a Director ID, they will keep the same Director ID throughout their life as they move between different roles and companies. 

Some might think this only applies to larger businesses and corporations who fall under this ‘director’ role, but that’s a common misconception. Private companies are relatively easy to set up and not too difficult to maintain. As a result, proprietary limited companies are the most common type of company in Australia. All Australian proprietary limited companies (Pty Ltd) are required to have at least one director, meaning this will apply to most small businesses.

For small businesses that already have limited resources in terms of budget and manpower, the last thing you want is a legal fee that places strain on your business. It’s critical to start this process now.

Upcoming deadlines?

The implementation of Director Identification Numbers is just on the horizon. As of 1 November 2021, directors will be able to apply for their Director ID. However, there are a few key cut-off dates to look out for. 

According to the Australian Business Registry Services (ABRS), the date a director must apply for their number depends on the date you were appointed as a director. It is important to note that there is a slight variation between the dates for Corporations Act directors and Corporations (Aboriginal and Torres Strait Islander) Act directors. 

According to these terms, if you become a director on or before 31 October 2021, you must apply by 30 November 2022. If you become a director between 1 November 2021 and 4 April 2022, you only have 28 days after the appointment, so you need to act fast. From 5 April 2022 onwards, you must apply before you are appointed as a director. 

What is the process?

Each and every director must apply for their Director ID themselves as no one can apply on their behalf. In obtaining your 15-digit Director ID, you must undergo an identity verification check. You must provide a combination of ATO documents, company documents, personal identity documents and much more. Basically, you must prove you are who you say you are.

The good news is it’s simple to get started. Here’s a quick link to the Australian Business Registry Service (ABRS) website. You can find more information on the ABRS website but just remember, applications will be open as of 1 November 2021

Your first step is to set up or verify your identity using myGovID to a standard or strong identity strength. This first step validly verifies your identity. However, to do so, you will need to provide proof of your identity across a range of ‘Australian identity documents’.  One way small businesses can get ahead of this is to put reminders in their calendar now and start preparing the documentation needed – TFN, residential address held by the ATO, bank account details, and so on. 

Holding a Director ID is about to become a legal must for all small businesses in Australia. So, don’t waste any time and start the process now.

Read more: New insolvency laws – 4 actions small business directors must take

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Dominic Woolrych

Dominic Woolrych

Dominic is the CEO of Lawpath, Australia's largest and fastest-growing online legal platform. Lawpath provides legal services to over 230,000 platform users at a fraction of the time, cost and complexity of the traditional system, and helps form five percent of new companies in Australia.

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