Quiz 40: Corporate Directors, Officers, and Shareholders

Business

Corporate Investigation: In the case of Bezirdjian v. O'Reilly , 183 Cal.App.4 th 316, 321, 107 Cal.Rptr.3d 384 (2010) the trial court granted nominal defendant Chevron Corporation's motion for judgment on the pleadings and dismissed his lawsuit. The Court of Appeals affirmed. According to statutes the decision to bring a law suit or to refrain from litigating a claim on behalf of a corporation is a decision concerning the management of the corporation. Consequently, such decisions are part of the responsibility of the board of directors. The court stated that shareholders seeking to assert a claim on behalf of the corporation must first pursue remedies through the directors of the corporation to obtain the action desired. The purpose of pre-suit demand is to ensure that the corporation has the opportunity to address an alleged wrong without litigation, to decide whether to pay for litigation, and to control any litigation that occurs. Thus, the shareholder is required to pursue action, first through the corporation.

A director can serve on board of more than one organization. when some transaction between two firms takes place and director is serving on both the firms the conflict of interest takes place. Whenever there is conflict of interest, the director is required to disclose all the information regarding the nature of conflict. This is also known as full disclosure. They are required to disclose the facts regarding transaction. Also, they must abstain from voting. If the director does not abstain from voting, then contract formed after such voting can be voided. In this case, it is clear that there were 5 directors on the board of company O including person W. However, W did not disclose the conflict of interest with company WI to all of them. He just disclosed it to other two directors only. Neither he abstained from voting. Thus, it can be said that director violated the section 713 of corporation act and thus the contract is not binding on the corporation.

Corporate Investigation: In the case of Bezirdjian v. O'Reilly , 183 Cal.App.4 th 316, 321, 107 Cal.Rptr.3d 384 (2010) the trial court granted nominal defendant Chevron Corporation's motion for judgment on the pleadings and dismissed his lawsuit. The Court of Appeals affirmed. The business judgment rule operates as a judicial acknowledgement of a board of directors' managerial prerogatives. A shareholder must challenge the rule by creating a reasonable doubt as to the good faith or reasonableness of a board's investigation through facts. Then, the stockholder may have the right to bring an action.

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