Case summary: Person DB was a director in company FBF which owned a string of fitness club in Mexico. DB owned 15 percent of the total stock in the company and was also working as a tanning technician at one of the fitness clubs. According to the finance report, company FBF was facing financial loss. Person ML discussed terminating the tanning operation. Person DP who was one of shareholders disclosed that person DB owned stock in the company S from which FBF purchased the tanning equipment. DB and MV owning 37 percent of FBF and also holding shares of company S, voted to replace ML from the board of directors.
To find: The duty of person DB as a director to company FBF
Explanation of Solution
Person DB owes ethical and legal duties as a director of company FBF. Person DB is in a fiduciary relationship to corporations and it is his duty to remain loyal and to act in good faith to the company.
In the above case, person DB owes a duty to disclose to company FBF about his shares in company S from where FBF purchases its tanning equipment. The directors are considered to be fiduciaries of the company and as a director they owe to the company the duty of loyalty, the duty of trust, and duty of care. It is expected from the directors that they will show a high care, diligence or skill, and will act in good faith for the development of the company. The directors will try to avoid conflict of interest. The relationship between the company and the directors is one kind of trust.
Want to see more full solutions like this?
Chapter 18 Solutions
The Legal Environment of Business: Text and Cases (MindTap Course List)
- Sally and Tom decide to go into business, selling discounted merchandise through their website “e-Buy.” They sign a partnership agreement that requires Sally to contribute $12,000 and Tom to contribute $8,000 in capital to start the firm. The agreement also states that only Sally will have the authority to bind the partnership in deals with third parties, but the agreement says nothing about the management of the firm or a division of profits. Without Sally’s knowledge, Tom tells United Computer Products, Inc., that he represents the firm and signs a contract with United to buy hard drives for resale on e-Buy. In the first year, e-Buy makes a profit of $50,000. What are the partners’ rights with respect to the management of the firm? Is the partnership bound to the contract with United? Do the partners split the first year’s profits? If so, how much is each entitled to?arrow_forwardMuller, a shareholder of SCM, brought an action against SCM over his unsuccessful negotiations to purchase some of SCM’s assets overseas. He then formed a shareholder committee to challenge the position of SCM’s management in that suit. To conduct a proxy battle for management control at the next election of directors, the committee sought to obtain the list of shareholders who would be eligible to vote. At the time, however, no member of the committee had owned stock in SCM for the six-month period required to gain access to such information. Then Lopez, a former SCM executive and a shareholder for more than one year, joined the committee and demanded to be allowed to inspect the minutes of SCM shareholder proceedings and to gain access to the current shareholder list. His stated reason for making the demand was to solicit proxies in support of those the committee had nominated for positions as directors. Lopez brought this action after SCM rejected this demand. Will Lopez succeed?arrow_forwardThe 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…arrow_forward
- BUSN 11 Introduction to Business Student EditionBusinessISBN:9781337407137Author:KellyPublisher:Cengage LearningEssentials of Business Communication (MindTap Cou...BusinessISBN:9781337386494Author:Mary Ellen Guffey, Dana LoewyPublisher:Cengage LearningAccounting Information Systems (14th Edition)BusinessISBN:9780134474021Author:Marshall B. Romney, Paul J. SteinbartPublisher:PEARSON
- International Business: Competing in the Global M...BusinessISBN:9781259929441Author:Charles W. L. Hill Dr, G. Tomas M. HultPublisher:McGraw-Hill Education