If a corporation was wronged by negligent and fraudulent acts committed by one of its directors and consequently suffered a $45 000 loss, and if the board of directors will not take any action on behalf of the corporation against the wrongdoer, which of the following is true?
A)A representative (derivative) action allows a shareholder to commence an action on behalf of the corporation.
B)If the company failed to commence an action through its authorized agents (e.g., its directors), no action could be taken, because a corporation is merely a legal concept and must act through its authorized agents.
C)The shareholders could proceed under the "dissent" procedure and force the corporation to pay them a fair market value for their shares.
D)The shareholders could sue the corporation for oppression.
E)The shareholders could force the directors to start the action on the basis of their "pre-emptive right."

Question

Quizplus · Accepted Answer

A representative (derivative) action allows a shareholder to commence an action on behalf of the corporation when the board of directors refuses to act on behalf of the corporation. This is because the corporation is a separate legal entity and must act through its authorized agents, such as the board of directors. Shareholders have the right to bring a derivative action to assert a cause of action on behalf of the corporation when the board refuses to do so. The other options listed (B, C, D, and E) do not apply to this scenario.

If a Corporation Was Wronged by Negligent and Fraudulent Acts