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Duties of directors - Essay Example

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Duties of Directors Introduction The idea behind the duty of a Director is to promote good governance and to shield the company as well as its stakeholder from facing legal issues. It can be observed that there are basically three sources of law that indicates the responsibilities of Directors of unlisted companies…
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Download file to see previous pages Notably, it is the company constitution that offers the board of directors with the adequate power to administer the business of the company (Katz, Lipton & Katz, 2011). In simplest terms, delegation of power means effectual allocation of resources to people with adequate skills and knowledge. It is to be mentioned that delegation is quite significant for the senior management to attain all the required tasks in a timely manner. It is applicable in all industry sectors along with government. Hereby, a delegate is considered to be the person who is responsible to carry out the role, authority as well as duties of, or to act on behalf of, or symbolize others (Tomasic, Bottomley & McQueen, 2002). It is worth mentioning that there are numerous duties that the director is accountable for. The main objective of this paper has been to comprehend the nature and the extent of statutory duties imposed on directors by Corporation Act. The discussion will further try to incorporate a critical analysis of the nature, application along with effectiveness of the two statutory duties of the directors under the Corporation Act. The two statutory duties are ‘duty of good faith’ along with ‘duty of care and diligence’. The study will also attempt to briefly discuss the duties of directors as well as relevant common laws which tend to control the role of these directors. Background The decisions rendered by the director needs to be examined very carefully in order to comprehend the fact what could have been done so that the company could have obtained greater benefits from that director (Turnbull, 2012). If the director is found to violate his duty, the company possesses the right to sue the director for causing damages. There are numerous general responsibilities of the directors which comprises of various specific duties. For instance, it is quite significant for the directors to exercise carefulness (Turnbull, 2012). This implies that the directors are supposed to utilise their informed judgements in order to administer the company in a proper way being capable of entrusting their judgments on certain measures. Furthermore, the delegation can be considered to be valid if it is done in a proper manner in the best interest of the company (Turnbull, 2012). Under the common law, it is the duty and right of the directors to deliberate. This implies that they are supposed to make good efforts in order to get involved, discuss, consider and thus make use of their judgment while acting on the matters of the company. It has been observed that it is the duty of the director to make use of their power for adequate purposes. If the power is being used for a wrongful reason, it is considered to be invalid. For instance, a director of the company may not be acting with an ethically sound purpose while the new shares tend to be issued. In such circumstances the company intends to restructure itself or to issue gifts in terms of compensation from the company’s resources so that the power of the director can be enhanced. Any act of the director which does not have a proper purpose might be considered as invalid, for instance, issuance of the shares to the public in order to defeat a takeover or to retain control of the company (Turnbull, 2012). It is the duty of the directors not to get involved in any kind of conflict of interests. Directors tend to have fiduciary duties which are generally outstanding to their company. This can be regarded as a ...Download file to see next pagesRead More
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