Business Law Today Study Set 1
Quiz 29 :
Corporate Directors, Officers, and Shareholders
The major responsibilities of the Corporate Directors and Officers are:- Duties of care and Duty of loyalty; Duties of care: The directors and officers or office bearers has to exercise their duties with due care. The negligence from the part of directors or office bearers will turn to be very costly to the corporation. Further, they are expected to be informed in all the matters of corporate laws and matters. Moreover, they have to conduct their duties with reasonable reasoning and proper investigation before making a decision. Duty of loyalty: Loyalty is the faithfulness to ones duties and obligations. The directors or office bearers has to subordinate their personal goals to the welfare of the corporation. They should not use corporate funds or properties for their personal advantage. Further, they must refrain from self-dealing for the matters pertaining to financial assets of the corporation.
There is right in law for the Minority shareholders. They may elect at least two directors, if they are not permitted to more under the manifold vote process. Thus, minority may send their representative to the board of director and through him they can convey their grievances to the directors.
The case revolves around a director (DB) who fails to perform his duties towards the firm (FB) in a manner expected from directors. The question here is whether the director carries any kind of duties towards the firm or there is any kind of conflict of interest. a)Director are fiduciary (trustee) on which shareholders' place trust to operate assigned corporation in a manner to maximize the profits and run sustainably. As a fiduciary, the directory carries duty of care and duty of loyalty toward the company (FB)b)A conflict of interest situation occurs when a corporation enters a transaction in which a director carries personal interest. This duty demand form directors to disclose any person interest or relation they have or had with the other party to the transaction. In current case, the director (DB) has shares in a corporation from which the company (FB) purchased the equipment shows a conflict of interest. c)The Director can use the defence of being reasonable and rational in the business transaction. He can say that the transaction was fair and reasonable without having a conflict of interest. d)The person (P) is a shareholder of the company. A shareholder of a company can bring a derivative suit against the directors and corporate officers for breach of duty and misconduct.