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Question 1
Several shareholders, after a recent disclosure of fraud on the part of the corporation's directors, have decided to sue the corporation. Such a suit is known as a:
Correct
Incorrect!
Correct
Incorrect!
Correct
Incorrect!
Correct In certain situations, shareholders may make a determination that the company or its board has acted in a fashion that has lost the company a great deal of value. In such a situation, the shareholders may file a derivative action to recover the value lost to the corporation.
Incorrect! In certain situations, shareholders may make a determination that the company or its board has acted in a fashion that has lost the company a great deal of value. In such a situation, the shareholders may file a derivative action to recover the value lost to the corporation.
Question 2
Prior to filing a derivative action suit, the litigant shareholder must perform which of the following actions?
Correct
Incorrect!
Correct In any derivative action suit, the shareholders must first request the board's approval of the suit and ask the board or the board's members to stop performing whatever act the shareholders are complaining about. Such a request is required in the law in order for the firm to make an initial determination as to whether or not the suit justifies the firm's time and expense.
Incorrect! In any derivative action suit, the shareholders must first request the board's approval of the suit and ask the board or the board's members to stop performing whatever act the shareholders are complaining about. Such a request is required in the law in order for the firm to make an initial determination as to whether or not the suit justifies the firm's time and expense.
Correct
Incorrect!
Correct
Incorrect!
Question 3
If shareholders win the action in a derivative action suit, what is the likely result?
Correct
Incorrect!
Correct
Incorrect!
Correct In a derivative action, it is ultimately the company's directors, along with the company as a nominal defendant, who are responsible for any damages that the court imposes. Ultimately, any damage amount that is imposed by the court goes back to the company with the shareholders taking out a percentage of that judgment in order to cover their legal expenses. The reason for this is that any shareholder action is actually an action on behalf of the company itself that is simply being carried out by shareholders.
Incorrect! In a derivative action, it is ultimately the company's directors, along with the company as a nominal defendant, who are responsible for any damages that the court imposes. Ultimately, any damage amount that is imposed by the court goes back to the company with the shareholders taking out a percentage of that judgment in order to cover their legal expenses. The reason for this is that any shareholder action is actually an action on behalf of the company itself that is simply being carried out by shareholders.