In CASE 20

question 59

Multiple Choice

In CASE 20.1Smith v.Van Gorkom (1985) discussed in the text,plaintiff-shareholders alleged the directors were grossly negligent in failing to inform themselves adequately before making a decision about a merger.How did the court rule and why?

• A) For plaintiff-shareholders, because the board failed to obtain adequate information on merger terms and therefore was not protected by the business judgment rule.
• B) For directors, because the board was protected by the business judgment rule since there was no conflict of interest.
• C) For the directors, but the board was not protected by the business judgment rule but rather by the business merger rule.
• D) For the directors, because the board was protected by the business judgment rule since fraud could not be established.

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Definitions:

Short-Term Notes Payable

Short-duration loans evidenced by promissory notes that a company must pay within a year or within its operating cycle, whichever is longer.