Question

Koto, a successful accountant, has been invited to join the board of directors of Big Corp. Koto is concerned that she will face personal liability for her decisions while on the board of Big. Big Corp. can limit Koto's liability at this point in time by including:

1) protective measures in its corporate charter.
2) voluntary protective measures in its bylaws.
3) voluntary protective measures in its articles of organization.
4) protective measures in the members' agreement.

Answer 1

Koto can limit personal liability by including protective measures in Big Corp's corporate charter, one of the key documents that govern corporate activities. The charter, supported by effective corporate governance, can provide directors with protection against personal liability for corporate actions.

Step-by-step explanation:

Koto, a successful accountant who is considering joining the board of directors of Big Corp, can have her liability limited by including protective measures in the company's corporate charter. This is a provision that can offer directors some protection against personal liability for their decisions made on behalf of the corporation. In addition to the corporate charter, bylaws and a members' agreement are other instruments where such protective clauses can be included, but these are more relevant to different organizational structures such as LLCs or cooperatives, respectively.

The board of directors is the first line of defense in corporate governance, tasked with oversight of top executives and representing the shareholders. Although corporations allow individuals to take business risks without fear of personal financial ruin, the system relies on transparent and accurate information, as the failure of corporate governance at Lehman Brothers demonstrated.