An Equitable or Constructive Obligation Arises When

question 5

Multiple Choice

An equitable or constructive obligation arises when:

• A) Social or moral sanctions or custom leaves the entity no realistic alternative other than to make a sacrifice of future benefits.
• B) Management makes a discretionary decision to make a future sacrifice of economic benefits.
• C) Management communicates its decision to commit to the future sacrifice of economic benefits to the parties concerned.
• D) Social or moral sanctions or custom leaves the entity no realistic alternative other than to make a sacrifice of future benefits and management communicates its decision to commit to the future sacrifice of economic benefits to the parties concerned.

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Definitions:

Model Business Corporation Act

A template law designed to standardize the regulation of corporate affairs in the United States, frequently adopted or adapted by state legislatures.

Insolvency

The state of being unable to pay debts as they fall due, or having liabilities exceed the value of assets.

Derivative Action

A lawsuit brought by a corporation's shareholder on behalf of the corporation against a third party, often an insider of the corporation.

Independent Directors

Board members who do not have a material or pecuniary relationship with the company or its management, ensuring unbiased decision-making.