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LAW 5a CASE STUDY and Questions (Case Study Sample)

Case Study and Questions: Question 1. How do the duty of care and the duty of loyalty gov¬ern the conduct of directors and officers in a corpora¬tion? Question 2. What are the rights of the shareholders of a corporation? Question 3 David Brock is on the board of directors of Firm Body Fitness, Inc., which owns a string of fitness clubs in New Mexico. Brock owns 15 percent of the Firm Body stock and he is also employed as a tanning technician at one of the fitness clubs. After the January financial report showed that Firm Body's tanning division was operating at a substantial net loss, the board of directors, led by Marty Levinson, discussed the possibility of terminating the tanning operations. Brock successfully convinced a majority of the board that the tanning division was necessary to market the clubs' overall fitness package. By April, the tanning division's financial losses had risen. The board hired a business analyst, who conducted surveys and determined that the tanning operations did not significantly increase membership. A shareholder, Diego Peñada, discovered that Brock owned stock in Sunglow, Inc., the company from which Firm Body purchased its tanning equipment. Peñada notified Levinson, who privately reprimanded Brock. Shortly thereafter Brock and Mandy Vail, who owned 37 percent of Firm Body stock and also held shares of Sunglow, voted to replace Levinson on the board of directors. 1. What duties did Brock, as a director, owe to Firm Body? 2. Does the fact that Brock owned shares in Sunglow establish a conflict of interest? Why or why not? 3. Suppose that Firm Body brought an action against Brock claiming that he had breached the duty of loyalty by not disclosing his interest in Sunglow to the other directors. What theory might Brock use in his defense? 4. Now suppose that Firm Body did not bring an action against Brock. What type of lawsuit might Peñada be able to bring based on these facts? source..
Law Case Study Name: Institution: Question 1: How do the duty of care and the duty of loyalty govern the conduct of directors and officers in a corporation?  Much of the work that directors do in the corporations involves a lot of decision making. The duty of care provides the standard code of conduct, for each and every director and officer. This duty binds the directors and the officers to make sure that when they make decisions, it is in good faith, it is informed and most rational. Misfeasance and nonfeasance are the two situations that lead to the duty of care (HYPERLINK "/search?tbo=p&tbm=bks&q=inauthor:%22Bruce+S.+Butcher%22&source=gbs_metadata_r&cad=6"Butcher, 2000). Misfeasance is the case where the director or the officer in question, makes a decision knowingly, which ends up hurting the corporation or the share holders. While nonfeasance, is a case when a director does not make a decision or does not act, in a situation that even the lower class employees would have acted upon. Put in other words if the director neglects his/her duties as a director he/ she is guilty of an offence. However, there is a catch; the negligence to act must lead to an actual injury, either to the company or the shareholders. The board of director and officers are also bound by the duty of loyalty to the company. So as to safe ...
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