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Duty of Care, the Duty of Loyalty, and the Business Judgment

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Explain the requirements of the Duty of Care, the Duty of Loyalty, and the Business Judgment rule. Who or what are these duties designed to protect? Are these duties necessary? Why or why not? Use this week's lecture as a basis for your post.

Peppertree, Inc., hired Robert McClellan, a licensed contractor, to repair a condominium complex that was damaged in an earthquake. McClellan completes the work, but Peppertree fails to pay. McClellan is awarded $181,000 in an arbitration proceeding. Peppertree then forms another corporation and transfers all of its assets to the new corporation without notifying McClellan. Can McClellan hold Peppertree's shareholders personally liable for the debt? Why or why not?

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The answer to this problem explains Duty of Care, the Duty of Loyalty, and the Business Judgment and case related to Robert McClellan and Properties Inc. The references related to the answer are also included.

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The duty of care is the obligation imposed on a person requiring compliance to a standard of reasonable care while performing an act that could harm others. The duty of loyalty refers to the requirement that a person with fiduciary duty places the corporation's interest ahead of their own. It addresses conflict of interest. This duty is required so that the person does not use the businesses assets, opportunities, or information for personal gain. The business judgment rule means that the directors are required to act on an informed based, in good faith and in the honest belief that the action taken was in the best interests of the company. ...

Solution provided by:
Hatim Baxamusa, MBA
Education
  • BSc , University of Calcutta
  • MBA, Eastern Institute for Integrated Learning in Management
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