Question

Ray is a shareholder of Small Biz Company (SBC). When the directors fail to undertake an action to re-dress 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:_______.

a. duty-of-care suit.
b. ​duty-of-loyalty suit.
c. ​business-judgment rule suit.
d. ​derivative suit.

Answer 1

The correct option is D,derivative suit

Step-by-step explanation:

A derivative suit is a suit filed by a shareholder such as Ray on behalf of the company ,in the event that director failed to act appropriately ,when the company has been wrong.

In this Ray is considered a nominal plaintiff and SBC is a nominal defendant,however whatever damages is awarded is for the benefit of the company,the nominal defendant.

In essence ,a derivative suit usually has three parties,the shareholder,the company as well as the third party that has been sued.