131Duty of directors to act in good faith and in best interestsof company

(1) Subject to this section, a director of a company, whenexercising powers or performing duties, must act in good faith andin what the director believes to be the best interests of thecompany.

(2) A director of a company that is a wholly-owned subsidiarymay, when exercising powers or performing duties as a director, ifexpressly permitted to do so by the constitution of the company,act in a manner which he or she believes is in the best interestsof that company’s holding company even though it may not be in thebest interests of the company. (3) A director of a company that isa subsidiary (but not a wholly-owned subsidiary) may, whenexercising powers or performing duties as a director, if expresslypermitted to do so by the constitution of the company and with theprior agreement of the shareholders (other than its holdingcompany), act in a manner which he or she believes is in the bestinterests of that company’s holding company even though it may notbe in the best interests of the company.

(4) A director of a company that is carrying out a joint venturebetween the shareholders may, when exercising powers or performingduties as a director in connection with the carrying out of thejoint venture, if expressly permitted to do so by the constitutionof the company, act in a manner which he or she believes is in thebest interests of a shareholder or shareholders, even though it maynot be in the best interests of the company.

Question:

Directors have many duties and obligations under the rules setout in Section 131. Assuming that you need to advise the directorsof a small company, explain how Section 131 impacts on their roleas directors.