Management of Corporations

Management of Corporations

1. The board of directors could use business judgment rule to protect themselves.

According to the law of business judgment rule, if the directors acted (1) on an informed basis, (2) in good faith, and (3) in the honest belief that the action taken was in the best interest of the corporation, courts will not enjoin the course of action taken by the directors. Moreover, if directors’ decisions cause loss to the corporation, the directors will not be held personally liable for it.

In this case, the board of directors acted on an informed basis, in good faith and from financial point of view to protect shareholders, so they have the right to protect themselves.

4. (1) MEA was liable for breach of contract.

According to the law, a corporation itself may be convicted of an offense if its agent committed the offense acting within the scope of the agent’s authority.

In this case, Larry was hired for a 2-year period by MEA directors and was fired six months later. The directors which did this within the scope of the agent’s authority have breached the contract, so MEA was also liable for breach of contract.

(2) The individual defendants, including the directors and some other employees, would not be shielded from personal liability.

According to the law, the authority of corporate employees and other officers, such as the secretary or treasurer, is generally limited to the duties of their office and they have liabilities relating to fiduciary duties.

In this case, some employees’ action caused the Larry’s contract breaking with MEA, even though they did it just for further welfare of MEA, they still need to be liable for it. Besides, the directors ultimately executing the action to fire Larry 6 months later which broken the contract also should to be liable for it.

5. Christy Pontiac should be liable for it.

According to the law, a corporation itself may be convicted of a criminal offense if its agent committed the offense acting within the scope of the agent’s authority.

In this case, after the rebating cash thing has happened, the president didn’t contact GM headquarters until after an investigation was begun, which meant that in this period, Christy Pontiac could do some remedies but it didn’t. All of the actions conducted by Hesli and president were within the scope of the agent’s authority. So Christy Pontiac as a corporation also should be liable for it.

8. Richard just needs to recover the compensation of recent 3 years.

According to the law of ‘Recovery of Erroneously Awarded Compensation’, A claw-back policy requires current or former executive officers to repay to the issuer any “incentive-based compensation including stock options awarded as compensation received during the three year period preceding the date on which the issuer is required to prepare an accounting restatement, based on the erroneous data, in excess of what would have been paid to the executive officer under the accounting restatement.”