Law of business association Essay Example

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Law of Business Association

Business entities have directors whose duty it is to protect the interests of the said organization. Given the trustee positions that corporations give to directors, they are likely to abuse their positions. To keep this group in check, the Corporations Act 2001 outlines the principles and the ethical conduct that directors, under fiduciary relationship with the company should observe even after ceasing to be part of the organization. A fiduciary arises when equity imposes duties on an individual with duties because of their influence and the power they wield over the principal1.

In Jones and XYZ company case, two issues stand out. Firstly, Jones decision to keep the vehicle is better understood by evaluating possible breach of directors’ fiduciary duty to a company. Secondly, the possible breach of common law. Employees are bound by common law and most importantly, the law of duty as granted in s 180 of the Corporations Act 20112. It is also vital to evaluate Jones actions in regard to s 183 given the information he has about XYZ and the car dealer. Lastly, the paper will analyze if Jones has the right to accept the vehicle.

Breach of the fiduciary and statutory duties

Directors are bound by two fundamental duties in a fiduciary relationship with a company. These are the duty of loyalty and the duty of care3. In their actions and decisions, directors must uphold the interests of the company at all costs.

Fiduciary duty of Loyalty and to avoid conflict

The most fundamental duty directors have is being loyal to the company. Section 184 of the Act requires each director to behave in honest ways in conduct of the company’s businesses. The ruling in the Shocking Technologies, Inc. v. Michael4 case emphasizes the weight of responsibility that a director has. It is noted that Jones acted rationally and averted any conflict of interest between him and the company. For instance, he notified the board promptly about his friend’s offer and the also enabled the company to acquire the fleet at lower costs. Jones emphasizes that the friend is willing to give him the car irrespective of the XYZ’s position on accepting gifts. The Act notes in s 191 that the director should inform the board when there is possible clash of interest. Jones considered the impact of this section and notified the board of what he is gain out of the deal. In Aberdeen Railway Co. v Blaikie Bros, the Cranworth L.C observed that the contract in which a director has interests should be ignored based on the principle of the director’s duty to protect the company5.

Fiduciary duty of care, diligence and skill

The corporations act demands in section 180 that directors discharge their duties diligently and with care. In s 180(2) (a), directors’ must be based on good faith. Collective discussion and disclosure of information are vital aspects of this duty. In s 180(2) (b), the decision should not be informed on the personal interests of one or all the directors6. In bringing the issue before the board of directors, Jones acted rationally and diligently. Under common law, breaching the duty of care and employing skill amounts to negligence and incompetence. Jones demonstrates his skills and careful analysis of situations and informs the board that his friend will ultimately give him the vehicle.


Jones has not breached any of the fiduciary duties. He has honestly demonstrated his loyalty to the company and that he is not using his position to get a present from the seller. He has shown that he is rational and careful in handling company business. Given these revelations, he should keep the vehicle.


Aberdeen Railway Co v Blaikie [1854] 1 Macq 461.

Corporations Act 2001. Australian Legal Information Institute.

Rezaee, Z. 2007. Corporate governance post-Sarbanes-Oxley regulations, requirements, and integrated processes. Hoboken, N.J.: John Wiley & Sons.

Shocking Technologies, Inc. v. Michael. [2012] Del. Ch. LEXIS 123.

John F. M., Christopher W. K, & Nancy G, L. Understanding Fiduciary Duty.
The Florida Bar Journal.
2010. Volume 84, No. 3.

John F. M., Christopher W. K, & Nancy G, L. Understanding Fiduciary Duty.
The Florida Bar Journal.
2010 Volume 84, No. 3

Corporations Act 2001. Australian Legal Information Institute

Razaee, Z. Corporate Governance Post-Sarbanes-Oxley: Regulations, Requirements, and Integrated Processes. John Wiley & Sons. 2007.

Shocking Technologies, Inc. v. Michael. (2012) Del. Ch. LEXIS 123.

Aberdeen Railway Co. v Blaikie Bros (1854) 1 MACQ 461.

Ibid n2.