Chapter 32, Problem 8Q

Smith, a shareholder, filed suit against the board of directors of a corporation in which he had owned stock. Smith claimed that he and other shareholders had not received top dollar for their shares when their corporation had merged with another. Consequently, they sought either a reversal of the merger or payment from the directors to make up for their losses. The directors, Smith argued, had violated their duty of due care because they based their decision on a 20-minute speech by the CEO. Also, the directors had not even looked at the merger documents, let alone studied them. Furthermore, the directors had not sought any independent evaluation by outside experts. For their part, the directors argued that because their decision was made in good faith and was legal, they were protected by the business judgment rule. Were the directors correct?

The pre-emptive rights of stockholders in a corporation are not statutory rights, but are ____________ and exist even when no specific grant or recognition of such right is provided for in statutory law. inherent rights common law rights provided by the Corporation Code implied rights A share held by a third person to be released only upon the performance of a condition or the happening of a certain event contained in the agreement. Common share Preferred share Escrow share Treasury share One of the attributes of a corporation is that it is an artificial being with a separate personality. As a result of this attribute, the corporation: is not liable for torts committed by its officer or agent. is liable for torts committed by its officer or agent. is liable for torts by its stockholders. is liable for torts committed by its stockholders and officers or agents. The “Grandfather Rule” in Corporation law means that: corporate stockholdings would be traced from the nationality of the…

Pritchard & Baird was a reinsurance broker. A reinsurance broker arranges contracts between insurance companies so that companies that have sold large policies may sell participations in these policies to other companies in order to share the risks. Charles Pritchard, who died in December 2011, controlled Pritchard & Baird for many years. Prior to his death, he brought his two sons, Charles Jr. and William, into the business. The pair assumed an increas ingly dominant role in the affairs of the business during the elder Charles’s later years. Starting in 2008, Charles Jr. and William began to withdraw from the corporate account ever-increasing sums that were designated as “loans” on the balance sheet. These “loans,” however, represented a significant misappropriation of funds belonging to the corporation’s clients. By late 2013, Charles Jr. and William had plunged the corporation into hopeless bankruptcy. A total of $12,333,514.47 in “loans” had accumulated by October of that…