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Legal factors of corporate management and ownership

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As company ombudsman, your task is to investigate complaints of wrongdoing on the part of corporate directors and officers, decide whether there is a violation of the law, and deal with the wrongdoers accordingly. Jane, a shareholder of Goodly Corporation, alleges that its directors decided to invest heavily in the firm's growth in negligent reliance on its officers' faulty financial reports. This caused Goodly to borrow to meet its obligations, resulting in a drop in its stock price.

Are the directors liable? Why or why not?

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Solution Summary

This solution discusses the legal factors involved in corporate management and ownership.

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There are two possibilities of liability in this scenario: the shareholder/ownership concept and the corporate concept.

The shareholder/ownership concept is the more traditional view. This view places the shareholders at the centre of the company. It recognizes their position as the real owners of a company. This means that the company has primary responsibility for the financial well-being of the shareholders. The company's goal, in other words, should be to increase value for the shareholders. ...

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