Cengage Advantage Books: Fundamentals of Business Law 9th Edition by Roger LeRoy Miller

Exercise 20

Liability of Directors. Starboard, Inc., has a board of directors consisting of three members (Ellsworth, Green, and Morino) and approximately five hundred shareholders. At a regular meeting of the board, the board selects Tyson as president of the corporation by a two-to-one vote, with Ellsworth dissenting. The minutes of the meeting do not register Ellsworth's dissenting vote. Later, during an audit, it is discovered that Tyson is a former convict and has openly embezzled $500,000 from Starboard. This loss is not covered by insurance. The corporation wants to hold directors Ellsworth, Green, and Morino liable. Ellsworth claims no liability. Discuss the personal liability of the directors to the corporation. (See Directors and Officers.)