At some point between seed and Series B, most startup boards gain their first outsider: an experienced operator, a domain expert, someone who has seen the movie before and can tell the founders how it ends. The appointment usually happens fast — a coffee, a handshake, a Form 484 lodged with ASIC — and the paperwork usually happens never. That is a mistake for both sides. The director takes on the full weight of statutory duties and personal liability with nothing in writing about what protects them; the company gives a board seat, and often equity, to someone whose role, time commitment and exit have never been defined. The fix is a short document stack: an appointment letter, a deed of access and indemnity, and a clear answer on how the director gets paid.
What the Law Supplies Automatically — and What It Doesn’t
Some things do not need to be in the appointment letter because statute imposes them regardless. From the moment of appointment, a non-executive director owes the same duties as every other director — care and diligence, good faith in the company’s interests, no improper use of position or information under sections 180 to 183 of the Corporations Act 2001 (Cth) — and carries the same personal exposure, from insolvent trading under section 588G to director penalty notices for unpaid PAYG, GST and super. “Non-executive” describes involvement in management, not a discount on duties. The mechanics of joining are statutory too: a signed consent to act before appointment under section 201D, and a director ID from the ABRS, which must be obtained before appointment.
Equally important is what the letter cannot do. It cannot entrench the seat. For a proprietary company, the replaceable rule in section 203C lets members remove a director by ordinary resolution, and constitutions commonly add their own removal mechanics; for a public company, section 203D reserves removal to the members. An appointment letter promising a three-year term does not stop a shareholder vote ending it in year one — at most it may found a contractual claim. Draft the term accordingly: an expected tenure, expressly subject to the constitution and the Corporations Act, not a guaranteed one.
What the Appointment Letter Should Cover
The appointment letter is where expectations get written down while everyone is still friendly. A good startup NED letter is four to six pages and covers:
- Role and time commitment. Attendance at a stated number of board meetings, availability between meetings, any committee roles. Startups typically want more than the listed-company norm of roughly two days a month — say so now, not resentfully later.
- Term and review. An initial period (two to three years is common) with renewal by agreement, subject always to the removal mechanics above and to any board composition provisions in your shareholders’ agreement — which, as we’ve covered before, usually determine who actually controls the seat.
- Fees and expenses. The cash fee, payment frequency, and reimbursement of reasonable expenses. If part of the package is equity, cross-refer to the separate option or share documents rather than burying grant terms in the letter.
- Not an employee, but. The letter should state the director is not an employee and the relationship is governed by the letter, the constitution and the law — while being honest that tax law treats director’s fees differently (below).
- Conflicts and other boards. A requirement to disclose material personal interests under section 191 and other directorships, and a protocol for recusal. For proprietary companies, the replaceable rule in section 194 generally lets a director vote after disclosure; public companies face the stricter section 195. Experienced NEDs sit on multiple boards — the letter should manage that reality, not pretend it away.
- Confidentiality and IP. Board papers are the most sensitive documents your company produces. The statutory duty in section 183 helps, but an express confidentiality covenant — surviving cessation — is standard, along with confirmation that anything the director creates for the company belongs to the company.
- Exit. Resignation on notice, automatic cessation events (disqualification, insolvency), and what happens to unvested equity — which should live in the equity documents but be consistent with the letter.
If the person is really an advisor — input without votes or duties — don’t put them on the board at all: an advisory agreement delivers the expertise without the liability, and a board observer seat (a topic for another day) sits in between.
Paying a NED: The Tax Wrinkles Founders Miss
Cash fees look simple and aren’t. Directors’ fees paid to an individual are subject to PAYG withholding, and — the one that routinely surprises founders — superannuation guarantee. Under section 12(2) of the Superannuation Guarantee (Administration) Act 1992 (Cth), a person entitled to payment for performing duties as a member of a company’s executive body is an employee for SG purposes, so the 12% guarantee applies to NED fees just as it does to salary. Sending an invoice does not change that when the fees are paid to the director personally. Fees run through payroll, get reported through Single Touch Payroll, and count as taxable wages for payroll tax in every state and territory (subject to the usual thresholds). Budget the true cost, not the headline fee.
Equity is the more common startup answer, and options are the usual instrument. The employee share scheme rules in Division 83A of the Income Tax Assessment Act 1997 extend to directors, so if your company meets the conditions for the start-up concession, NED options granted with an exercise price at or above market value can qualify for the same concessional treatment as employee options. Grant them under proper documents, with vesting over the expected tenure and clear leaver treatment. One structural note: the related party benefit rules in Chapter 2E requiring member approval apply to public companies — proprietary companies are generally outside them, unless the company has crowd-sourced funding shareholders, in which case section 738ZK applies Chapter 2E as if it were a public company. Either way, reasonable, documented remuneration is good governance in any structure.
The Deed of Access and Indemnity: What Experienced NEDs Ask For First
A seasoned director’s first question is rarely about fees — it is about what protects them when something goes wrong, possibly years after they leave. The statutory baseline is thin: section 198F gives a current director a right to inspect the company’s books (other than its financial records — a sitting director’s access to those comes from section 290) for the purposes of legal proceedings they are a party to, propose in good faith to bring, or have reason to believe will be brought against them; a former director gets the same litigation-purposes right, financial records included, for seven years after ceasing. A deed of access, insurance and indemnity builds on that: contractual access to board papers during and after tenure, an indemnity to the maximum extent the law permits, and a commitment to maintain D&O insurance — including run-off cover after the director leaves.
The law draws hard limits the deed must respect. Under section 199A, a company cannot exempt an officer from liability to the company, and cannot indemnify against liabilities owed to the company, pecuniary penalty and compensation orders, or liabilities to third parties that did not arise in good faith; legal costs indemnities carry their own carve-outs. Section 199B similarly limits paying insurance premiums for wilful breach of duty. That is precisely why D&O insurance matters: it can respond where the company’s indemnity legally cannot, and a NED joining an early-stage board without it is taking uninsured personal risk on your governance. If you cannot yet afford D&O cover, expect that conversation to be short.
The Bottom Line
An independent director is one of the highest-leverage additions an early-stage board can make, and the documentation is not onerous: an appointment letter that sets role, time, term, fees, conflicts and confidentiality while respecting the statutory removal mechanics it cannot override; fee arrangements that account for PAYG, super and payroll tax, or equity granted properly under the ESS rules; and a deed of access and indemnity backed by D&O insurance, because that is what any NED worth having will ask for before consenting to act. Do it before the first board meeting — the moment you most need the documents is the moment nobody wants to sign them.
This article is general information only, not legal advice — the right appointment terms depend on your constitution, shareholders’ agreement and stage, and tax treatment depends on the specific arrangement. Viridian Lawyers advises Australian founders and investors on board appointments, governance documents and equity incentives. If you’re adding an independent director to your board, get in touch and we’ll put the document stack together properly.
