Question

Ray is a shareholder of Small Biz Company (SBC). When the directors fail to undertake an action to redress a wrong suffered by SBC, Ray files a suit on the firm’s behalf. Refer to Fact Pattern 20-1. Ray’s suit is a shareholder’s Group of answer choices ​duty-of-care suit. ​duty-of-loyalty suit. ​business-judgment rule suit. ​derivative suit.

Answer 1

Ray's lawsuit on behalf of SBC against the directors is classified as a derivative suit, where he seeks to remedy a wrong done to the company that the directors failed to address.

Step-by-step explanation:

In the context of Ray's lawsuit against directors who failed to undertake action to redress a wrong suffered by Small Biz Company (SBC), the type of suit that Ray has filed is known as a derivative suit. A shareholder derivative suit is a legal action brought by a shareholder on behalf of the corporation against parties typically insiders, such as directors or officers, alleged to have harmed the corporation. This contrasts with a duty-of-care or duty-of-loyalty suit, which pertains to the fiduciary responsibilities of officers and directors, and the business-judgment rule, which provides a presumption that directors made decisions in good faith and in the best interest of the corporation.A derivative suit is a lawsuit brought by a shareholder on behalf of the company to redress a wrong that has been suffered by the company. In this case, Ray is filing a suit on behalf of Small Biz Company (SBC) because the directors have failed to undertake an action to redress a wrong suffered by SBC.

Answer 2

Ray is a shareholder of a small company. When the director falls to undertake an action it falls under derivative suit.

Step-by-step explanation:

• Derivative suit is referred to as a law suit that is brought by the shareholder in behalf of the company against the third party.
• If in a company the employees, the directors as well as the officers are not ready to file a complain against the third party then the shareholder has the right to file a complaint against the third party.
• Derivative suit is normally filed by the shareholder when there is a mismanagement in the company. To stop the illegal work this action is being taken.