The shareholders of Beazer Homes USA filed suit against the directors for the compensation plan that the Board approved for officers that provided the officers with bonuses despite the losses the company experienced and the continuing declines in sales of homes.Which of the following is correct about the suit?
A)Shareholders are not permitted to sue their own directors.
B)Absent fraud or illegality, the shareholders have no rights against the directors.
C)The shareholders will need to establish a violation of the business judgment rule.
D)Unless the shareholders were harmed directly, they have no right to bring suit or recover.

Question

Quizplus · Accepted Answer

The shareholders will need to establish a violation of the business judgment rule. This rule states that directors are protected from personal liability as long as their decisions were made in good faith and with a reasonable belief that their decisions were in the best interests of the company. However, if the shareholders can prove that the compensation plan was a breach of that duty, they may have a case. The other options are not correct, as shareholders do have rights against directors and can bring suit if they can establish harm or breach of duty.

The Shareholders of Beazer Homes USA Filed Suit Against the Directors