Passing the Baton or Holding the Fort? Understanding Alternate and Successor Directors

James Creevy and Mitchell Harding, current as of: 19 March 2025.

Directors play the key role in the everyday running, and long term operation, of Australian companies. However, there are two types of Directors – Alternate Directors and Successor Directors – that hold different roles to the traditional Directors you and your clients may be aware of. The Acis constitution for private companies limited by shares (“Acis constitution”) provides for the appointment of Alternate Directors, and upon request, can also include provisions which allow for the nomination of Successor Directors.

It is essential that advisers understand the roles of Alternate Directors and Successor Directors to ensure they can guide their clients in making the decision as to whether either of these types of Director are suitable for a particular company.

What is an Alternate Director?

The Corporations Act 2001 (Cth) and Acis constitution allow a Director (the “appointor”) to appoint an Alternate Director to exercise their powers for a specified period. This mechanism ensures the company can continue to operate without disruption and is commonly used when the appointor is unable to fulfill their duties as Director perhaps due to a period of extended travel or due to the time needed to recover from illness.

An Alternate Director assumes the powers, rights, and duties of the appointor but is not considered a permanent member of the board of Directors. The Alternate Director ceases from office if the appointor ceases to be a Director or upon the appointor being able to return to the office of Director. It’s important to remember that an Alternate Director can only be appointed with the approval of all other Directors in the company.

What is a Successor Director?

Provisions allowing for the nomination of Successor Directors allow each Director to nominate a Successor Director to act as Director in their place if they die or are Legally Disabled for any period – this term is defined later in this article. As part of the nomination process, all Directors must approve the nomination and the Successor Director, or ‘nominee’, is to sign a consent to act at the time of being nominated to ensure the appointment process is as efficient as possible when the time comes for the nominee to succeed the Director who made the nomination. Utilising this mechanism assists with estate planning and with facilitating business continuity, particularly in privately held businesses or family enterprises.

For the purposes of the provisions allowing for the nomination of Successor Directors, which are available for inclusion in the Acis constitution on request, “Legal Disability” or “Legally Disabled” in relation to a Director means: 

  • a lack of legal capacity because the Director becomes an intellectually disabled person who is liable to have their affairs administered by another person under any law dealing with the intellectually disabled; or 
  • is suffering from a mental illness, or is mentally disabled, and is liable to have their affairs administered by another person under any law dealing with mental health or the mentally disabled

Key Differences Between Alternate and Successor Directors

  1. Duration of Appointment as Director:
    • Alternate Director: Temporary, acting only during the period that a Director (the “appointor”) is absent. The appointment of an Alternate Director also ceases upon the appointor ceasing to be a Director.
    • Successor Director: Permanent, replacing the Director that nominated them (the “nominator”) and only ceases from office upon resignation or removal, or when the nominator ceases to be Legally Disabled.
  2. Legal Status:
    • Alternate Director: Temporarily inherits the rights and duties of the absent Director but does not hold a permanent seat on the board of Directors.
    • Successor Director: Recognised as a Director with all of the powers and duties that come with the role but only when the nominator passes away or for the period where the nominator is Legally Disabled resulting in the Successor Director mechanism being enlivened.
  3. Appointment Process:
    • Alternate Director: Consents to act as Alternate Director before being appointed by the Director who will be absent, with the unanimous consent of all other Directors of the company.
    • Successor Director: Appointed by the Company in accordance with a nomination made by a Director, with the approval of the other Directors. At the time of the nomination, the Successor Director signs a consent to act to facilitate the smooth transition to office when the time comes. 

The Acis Constitution 

The standard Acis constitution for private companies limited by shares provided by Acis contains provisions for the appointment of Alternate Directors. Although the nomination of Successor Directors can provide an efficient mechanism to facilitate business continuity and prudent estate planning, it may not be appropriate for all companies. An example of when the nomination of a Successor Director may not be appropriate is where the company is operated by more than one family or acts in multiple capacities. Due to this, the Acis constitution does not include the provisions for the nomination of a Successor Director as standard. However, if it has been determined by the adviser and client that the Successor Director provisions are required, simply let us know when you place an order for a private company limited by shares or upgrade an existing private company’s constitution and we will accommodate this request.

Acis does not provide advice in relation to commercial law, taxation, duty, company law or any other matter. We do not purport to provide advice nor should you construe anything in any correspondence with us, or material provided by us, as advice of any kind.
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