In 2019, a consultant hired by Claire’s Entertainment Co. concluded the company could run a profitable new bar/restaurant and live music venue in Cincinnati. In response, its board of directors voted to purchase a building in an arts district and invest millions of dollars renovating it with a stage and state-of-the-art sound system. It was set to open in March 2020. When COVID-related government shutdown orders prevented it from opening at all in 2020, Clare’s abandoned the project and took a huge loss. If a shareholder sued the board of directors for negligence: a. The shareholder would likely win, because corporate boards of directors cannot rely on advice from consultants
In 2019, a consultant hired by Claire’s Entertainment Co. concluded the company could run a profitable new bar/restaurant and live music venue in Cincinnati. In response, its board of directors voted to purchase a building in an arts district and invest millions of dollars renovating it with a stage and state-of-the-art sound system. It was set to open in March 2020. When COVID-related government shutdown orders prevented it from opening at all in 2020, Clare’s abandoned the project and took a huge loss. If a shareholder sued the board of directors for negligence:
a. The shareholder would likely win, because corporate boards of directors cannot rely on advice from consultants
b. The shareholder would likely win, because directors are always liable to shareholders when a corporation’s venture lose money
c. The shareholder’s suit would likely be dismissed because shareholders of a corporation cannot sue the board of directors
d. The shareholder would likely lose because of the business judgment rule
Step by step
Solved in 2 steps
