Case Study: Shareholder Rights and Corporate Litigation Analysis

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Added on  2023/06/15

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Case Study
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This case study delves into corporate litigation, specifically focusing on shareholder rights and the duties of the board of directors. It examines the board's responsibility to act in the best interests of shareholders, emphasizing transparent communication, diligent monitoring of stakeholder relations, and impartial decision-making. The analysis extends to the potential liabilities of directors who fail to fulfill their duties, including financial compensation and legal penalties. Furthermore, the study addresses the circumstances under which shareholders can file lawsuits against board members for perceived mismanagement or decisions detrimental to the company's profitability. It also highlights the importance of companies sharing information and strategies with shareholders to foster a positive environment and attract investors, emphasizing the balance between protecting shareholder interests and enabling effective corporate governance. Desklib provides access to similar solved assignments and study tools for students.
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1.The Board of Directors act on the behalf of its shareholders to run the daily affairs of the
business. The board of directors are directly responsible to its shareholders for which the
company holds annual general meeting in which they present annual report in front of its
shareholders on the performance of the company, strategies, its future goals and objectives and
also for the re election of its board members. The main aim of the board is to ensure the
company’s progress by directing its daily affairs which protects the interests of its stakeholders
and shareholders.
In my opinion the directors of the company should act in the following way to protect the
interests of its shareholder which are:
Proper and effective communication towards or from the shareholder and relevant
stakeholders
Need to understand work according to the interest of the shareholders and stakeholders’
The monitoring of relation with the stakeholders and shareholders by collecting and
evaluation relevant information.
Promotion and encouragement of support and goodwill of its shareholders and relevant
stakeholders.
The director must always take decisions towards the interest of the company, not for any
collateral purpose. In other words, especially if there is any conflict of interest between
their own conflict and company’s interest, the directors should always favor the
company.
The director should always exercise competence and caution in every situation like a
reasonable person would do under such circumstances.
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2. According to me, the director should have these duties as its in the benefit of both the
company between the shareholders. A transparency between the shareholders and company is
what increases the goodwill of the company leading to success of both company and
shareholders. If a director fails to perform its duties leading loss or damage to its shareholders
then in that case the director may have to compensate for loss of the company. There are other
risks for non-compliable under the new company Act. these risks comprise of both penalty and
imprisonment.
The Directors should always act within the powers provided to them otherwise it might be
considered unlawful and they may be personally liable for that activities. There judgement must
be independent for their proper execution of duties they should be fair to all the members of the
company the failure to these duties further deteriorates or may tarnishes the image of the
company. This can further lead to loss of money and reputation of the company. A good director
always thinks about the success of the company and its shareholder. If the company is on the
verge of becoming insolvent due to the wrong doings of the directors and its board members then
the company may be deemed bankrupt and will let its shutdown completely.
Thus, it is important for the board members and directors to fulfill their duties in time of
insolvency to ensure the survival of the company. Any company can succeed only when all of its
members perform their duties honestly and is responsible for their actions.
3. Yes, I do think the shareholders should be allowed to file law suits against the member of the
board if they think the board is not doing a good job in making the company profitable. As a
shareholder puts his money in the company to obtain ownership which gives them right to vote
on important decisions such as electing or removing directors, modification of company by laws,
approving fundamental changes in the company. Hence, as the shareholder own the company
shares, they always want the board to act in the interest of the company. If the board takes
decision on their own which affects company’s interest then the shareholders may act by filing
lawsuits. The shareholders or stakeholders of the company acts as guardians of the company’s
causes of action. Basically, causes of action, means a wrongful action or a reason to file a suit
against the decision maker. In this situation a shareholder can file a derivative law suit. A share
holder must explain his cause of action to the board of directors before filing a derivate law suit.
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Afterwards, he can then ask board to enforce company’s right, unless the board rejects his
demand which is unlikely to happen. If the board of directors does not act in the interest of the
shareholders then they can go to file law suit. If the shareholder wins the lawsuit then the
company is liable to pay for his expenses incurred while filing the law suit. But if he does not
win, the company will not repay him.
Incase the shareholders does not require on board action towards the company then it may
promote their action. This will further encourage their action and they might put their own
interest in front of the company’s interest. It is important for any company to share all the
information, plans strategies with its shareholders, so that there is positive environment which
will attract more investors.
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