Terri is the new president of "MD Management," a corporation set up to manage physician practices. Terri has never been very concerned with minority shareholders because she does not believe that they have any influence over the company because they cannot even elect a director. She is told, however, that the corporation has a practice of cumulative voting. An election is coming up in which 10 directors will be elected. Minority shareholders own 2,000 shares while majority shareholders own 8,000 shares.

 Terri tells her vice president, Gavin, that she wants to ignore minority shareholders and focus her interests on majority shareholders and the directors. She also tells Gavin that she wants to be particularly conscientious toward directors because the directors appoint officers, and she does not believe that she owes any actual duties to shareholders.

 She further orders Gavin to destroy some documents subpoenaed in a criminal investigation against the company for illegal tax evasion. When Gavin protests, Terri tells him not to worry because officers cannot be held responsible for criminal actions so long as the actions are done as part of the officer's duties. She explains to him that only the corporation can be charged with liability in such cases.

 

Is Terri accurate that she owes no duties to shareholders?

Multiple Choice

• Yes, she is accurate because it is the directors who owe a duty to shareholders.

• No, she is inaccurate because she owes a duty of care to shareholders although she owes no other duties.

• No, she is inaccurate because she owes a duty of loyalty to shareholders although she owes no other duties.

• She is partially accurate. She owes both a duty of care and a duty of loyalty to minority shareholders, but no duties to majority shareholders because the law assumes that they have the power to protect their own interests.

• No, she is inaccurate and owes both a duty of care and a duty of loyalty to shareholders.

 

 

How many votes will the minority shareholders have in the election?

Multiple Choice

• 2,000

• 4,000

• 6,000

• 10,000

• 20,000

 

 

Is Terri correct in that officers cannot be held criminally responsible for their actions on behalf of a corporation?

Multiple Choice

• She is incorrect.

• She is incorrect because the corporation is no longer solvent due to illegal tax evasion.

• She is correct only if the board of directors has accepted all liability for acts of officers.

• She is correct only if environmental or employment matters are involved.