Understanding Good Faith and Proper Purpose in Corporations Law

Running head: CORPORATIONS LAW
Corporations Law
Name of the Student
Name of the University
Author Note

CORPORATIONS LAW1
Introduction
The concern presented by the engagement of the directors with actions that pertains to an
improper cause would be assessed in the light of the they were supposed to guarantee. All the directors
need to have the contention of guaranteeing the well being of the company and conducting the operations
related to the company and not to ensure that well being of the board. There has been a fiduciary duty
underlying the relationship of the company along with its directors, which requires them to discharge the
functions they have been conferred with for beneficial needs of the company (Hanrahan 2018). Whether
there is an adherence to the duty to guarantee proper purpose of the company being served by the
directors is to be analysed with respect to the for that the directors were supposed to ensure in case of a
particular circumstance while discharging there duty of conducting the face of the company. The concern
relating to the directors of the company being refraining from exhibiting any improper cause being
committed towards the company that has resulted in in a detriment being cost to the company has been
explain with the case of ASIC v Flugge & Geary [2016] VSC 779. The contention of the appropriateness
of the purpose for which the actions of the director has been undertaken need to be analysed with respect
to the circumstances existing in a particular matter (Buscombe 2019). The present essay would discuss
the meaning of good faith along with proper purpose. This would be carried out under the light of the
assistance that these two concepts provide in obtaining the statutory mechanism for corporate.
Discussion
Good Faith and Proper Purpose
Good faith can be defined as an expression that contemplates and honesty as well as sincerity
being inflicted from the actions of an individual. It points towards a lack of deceptive intentions of
indulging into fraudulent activities. There has been existing various interpretation relating to the term
good faith as the courts are entitled with the discretion to interpret the term for addressing the disputes
with respect to the circumstances belonging to the case. The concept of good faith is a significant aspect

CORPORATIONS LAW2
of the legal field to be more precise the field of commercial laws. It is a concept of relevance in case of
commercial transactions as needs to be ensured by the parties involved in the same (Adams 2016). The
individuals who has been alleged to pursue activities of nature can a wheel protection for them by virtue
of the establishment of good faith being present in their actions towards such an activity and would retain
the rights he has been owning present with respect to the opposite party of that arrangements. When a
person has been elected to have committed any wrong doing open the defence of good faith as a defence
which is worth of being trusted in fact circumstances. Such clean relating to the presence of good faith in
the actions of the person will not be enough to extinguish his liabilities but a solid proof of his innocence
ensuring good faith needs to be furnished for the purpose of proving his defence of good faith in the court
(Carter and Courtney 2016).
The proper purpose is a concept which has a proximate relationship or can be said to have
evolved from the duties that exist for the directors of a company. The directors of the company are under
an obligation to ensure that appropriate purpose has been served with their actions for the company. The
position that a director holds within a company is that of faith and trust and the same is required to be
insured by the directors with respect to your actions in relation to the conduct of the company. All the
actions the undertake while discharging their power as a director is required to be in compliance with the
appropriate cause that belongs to the company. For this purpose the term proper purpose needs to be
analysed with respect to the operations of the company (Xu, How and Verhoeven 2017). It is a very
concept and cannot be e defined universally. A particular purpose that pertains to one company may not
be an appropriate purpose for another company. This is because every company operates in a different
sector or industry and they does not have similar operations being carried out which respect to their
affairs of the business. Any improper purpose being served by the directors belonging to the company
would imply a liability being incurred by them under the breach of their duty with respect to guaranteeing
the proper purpose being served to the company by their activities in relation to conducting the operations
of the company. All the activities of the company in relation to conducting the operations of the company