AstroStar, Inc. has approximately five hundred shareholders. Its board of directors consists of three membersEckhart, Dolan, and Macero. At a regular board meeting, the board selects Galiard as president of the corporation by a two-to-one vote, with Eckhart dissenting. The minutes of the meeting do not register Eckhart's dissenting vote. Later, an audit reveals that Galiard is a former convict and has embezzled $500,000 from the corporation that is not covered by insurance. Can the corporation hold directors Eckhart, Dolan, and Macero personally liable? Discuss.

The five hundred shareholders are the _____ of the corporation, AstroStar.

1. officers

2. directors

3. owners

The directors of the corporation, Eckhart, Dolan and Macero, are considered to be ______ of the corporation.

1. fiduciaries

2. officers

3. trustees

The directors owe AstroStar the duty of care, which means they are to: act ______ ; exercise care of an ______ ; and act in the _____ interests of the corporation.

First Blank Second Blank Third Blank

1. Ordinary 1. Ordinarily 1. Ordinary

2. Honestly 2. Honestly 2. honestly

3. best 3. Best prudent person 3. best

The directors have a duty to make ______ , which includes conducting an investigation before making a decision. Directors _______ make decisions without adequate research.

First Blank Second Blank

1. Informed 1. can

2. absolute 2. Can not

3. perfect decisions

Generally, directors _______ be held liable for negligent acts that cause harm to the corporation or its shareholders.

1. can

2. can not

Under the ________ , directors _______ be liable to the corporation or to its shareholders for _______ mistakes of judgment and bad business decisions.

First Blank Second Blank Third Blank

1. business judgement rule 1. Will 1. honest

2. limited director liability rule 2. Will not 2. ordinary

3. informed decisions rule 3. Every day

The business judgment rule will apply as long as the director ________, _______ and ________.

First Blank

1. took reasonable steps to become informed about the matter

2. was elected by the shareholders

3. voted in annual director meetings

Second Blank Third Blank

1. had a rational basis for his or her decision 1. Was elected by the shareholders

2. was elected by the shareholders 2. Voted in annual director meetings

3. voted in annual director meetings 3. Did not have a conflict of interest

Eckhart has an argument that he should not be held liable because he dissented in the vote. What is one significant problem with his argument?

1. eckharts vote was the minority vote

2. the minutes of the meeting did not register the dissenting vote

3. the $500,000 loss was not covered by insurance

In this case, in order to make an informed decision, the directors should have conducted a ________ investigation of Galiard and evaluated alternatives before making a decision.

1. thorough

2. cursory

3. brief

In this case, a court would likely find that Dolan and Macero ________ their fiduciary duties and that, absent evidence of Eckhart's dissenting vote, Eckhart _______ his fiduciary duty.

First Blank Second Blank

1. breached 1. breached

2. did not breach 2. Did not breach

Assume Eckhart's dissenting vote was clearly recorded in AstroStar's official minutes from the meeting. Would Eckhart be held liable in this instance?

1. likely yes

2. likely no

Would Eckhart's dissenting vote relieve Dolan and Macero from liability?

1. yes

2. no