John and two friends incorporated a closely held corporation.Each bought an equal number of common shares in the corporation.Each became a director,an officer,and an authorized agent of the corporation.Which of the following is true?
A)Each of them,as a director,owes a fiduciary duty to the others,as shareholders.
B)As director,each owes a fiduciary duty to the creditors of the corporation.
C)The corporation is more highly regulated and less free of government regulations and control than a broadly held corporation would be.
D)If the affairs of the corporation are being conducted in a manner that is unfairly prejudicial to any one shareholder,that shareholder could seek relief from such oppression from the court.
E)Since the corporation is a legal fiction,all of its activities must be carried out through principals.

Question

Quizplus · Accepted Answer

As per the statement, each of them became a director, an officer, and an authorized agent of the corporation. Therefore, as directors, they owe a fiduciary duty to the corporation and its shareholders. Additionally, if the affairs of the corporation are being conducted in a manner that is unfairly prejudicial to any one shareholder, that shareholder could seek relief from such oppression from the court. Thus, option D is correct. Option A is incorrect because as directors, they owe a fiduciary duty to the corporation and its shareholders, not to each other. Option B is incorrect because while the directors have a fiduciary duty towards the corporation, they do not owe such a duty to its creditors. Option C is incorrect because whether a corporation is closely held or broadly held has no correlation with its regulation and control by the government. Option E is incorrect because while a corporation is a legal fiction, its activities can be carried out through agents or employees, not necessarily principals.

John and Two Friends Incorporated a Closely Held Corporation