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Bsad 305 Risk Corporation

In: Business and Management

Submitted By kochmatt33
Words 967
Pages 4
Scenario 1 While looking at the Risk Corporation’s case and who is potentially liable we found some issues that may have contributed to damages done to the stockholders. Issues included: Breaking Wisconsin Disclosure Law, Shareholders filed a Derivative Action, and because of certain actions Risk Corp. lost money due to the data breach. There are several relevant laws & principles that pertain to Risk Corporation. The Business Judgement Rule could be used as a defense for Tom Lawless in response to the derivative action. The business judgement rule states that directors and officers are immune from personal liability if their actions are reasonable when made but prove to be detrimental to the corporation. Next, the Duty of Loyalty may have been broken when Lawless didn’t put the corporation's interest ahead of personal interests. This happened when the Risk Corp. didn’t disclose the potential conflict of interests regarding cyber break-ins. The Duty of Care is relevant because the directors and officers have a duty to exercise reasonable care in conducting corporate affairs. And lastly Shareholder litigation is seen here when the shareholders filed a derivative action after the discovery of the data breach and the decline of stock prices of the Risk Corporation.
Scenario 2
A shareholder is part owner of a corporation based on the percentage of the corporation's stock the shareholder owns. Shareholders have the right to vote to approve any fundamental corporate changes that the board of directors wishes to implement. Examples of changes are amending the articles of incorporation or its by-laws, merging or dissolving the corporation, increasing the shares the corporation can authorize, and selling corporate assets.
Shareholders also have the right to vote on any vacancy on the board of directors by a proportion of the shares they hold. They are also granted the right of being able to inspect the company’s financial records with advanced request. We believe that shareholders should have an advisory vote on the pay of corporate executives. The first reason is that, according to the article in The New Yorker, many CEO’s salaries are now being mostly paid in a higher percentage of company stock. This measure has been taken in the wake of the financial crisis “so that their interests will be aligned with those of shareholders” (The New Yorker). By allowing shareholders to continue to have an advisory say on executive pay it will strengthen the relationship between shareholders and executives. This is because the shareholders will feel more involved in how the corporation spends its revenue and will continue to allow the executives to make decisions based on the better intrests of the corporation instead of being worried about having their compensation infringed on directly by the shareholders. Shareholders should not have a direct “say-on-pay” for the executives of the corporation. By allowing shareholders to have a say on how much compensation exceutives get the line between ownership and management will be further blurred, especially now that executives are being compensated with company shares. Courts would not be more likely than they already are to pierce the corporate veil if shareholders had a say on pay. Piercing the corporate veil can happen if an owner,officer, or director and even if the line between ownership and mangement is blurred it doesn’t negate the legality of any actions by anyone in management.
Scenario 3
When considering whether Roston should franchise the business or expand the business as a sole proprietor, we have to look at the advantages and disadvantages of both options. The advantages of expanding the business as a sole proprietor is that he will have more control over the business and how it is run. This also makes the investments safer because he has more control of where his money goes. Also with a sole proprietorship, he will receive tax advantages and it is overall less expensive than franchising. Disadvantages of this option are that he is obtaining more liability and considerable debt to cover the costs of opening and staffing a new office and purchasing additional construction equipment. Roston would also need to train an office manager to run the new office. The other option would be to franchise his business. The advantages of franchising are that in this case, they have a strong business plan. Roston will receive support and resources from his consultant. Long term, this option will create a larger revenue stream because they will have at least 25 stores that will be generating revenue. The disadvantages of this option are how expensive it will be with the additional costs of hiring a franchise director and training his staff. Roston will also be losing partial control of his business and won't receive all the profits.
Assuming Roston reaches his hefty goal of 25 stores, this is option Roston should choose. From the information given, Roston has already started expanding his business, and franchising is a safe way to expand further into the construction industry. Since Roston has never been on the roof himself, it is a smarter move to hire people with more experience in the roofing and construction fields. Before Roston makes the move to franchise he has a few questions he needs to answer: How many reliable franchisees can he find to grow his business, does he want more or less control over the new locations, and how soon does he want to be able to pay off the debts of expanding his business?

Ben and I worked together by reading the case together, and then each writing his ideas down on paper. After we would share what our ideas were and then pick and choose which answer would fit best for each scenario. This way helped us both come up with our own ideas but also allowed to hear another perspective.…...

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