Reference no: EM132690718

Corporate Decision Making Project:

For this project only, assume that all of you decided that a corporation would be used for the business (instead of the LLC I had you all create - this assumption is for this question only). Your corporation is a closely held for profit private corporation - meaning the shares are not publicly traded on any stock exchange. Sales of shares, if at all, would simply be in a private face-to-face sale. However, that is highly unlikely to happen in most privately held corporations.

NOTE: I provided comments and three separate links to additional readings above the link to this project - READ all of them and understand them; they are relevant to the project.

Here are the facts. Your business has been in operation for one year and it has made a profit of $200,000 for this year - that means all the bills/expenses have been paid, and this amount is the profit. 

The decisions that need to be made are what to do with this profit. Assume that the choices are to retain the money for the corporation, perhaps declare a dividend and/or give pay raise to the CEO.

The only shareholders are you and two of your relatives, those same people make up the board of directors, and one of you is the CEO. Do not ignore the business judgment rule in your answers. Your answers must demonstrate an understanding of what must be done and why it must be done, not just some generic statements using the terms such as "business judgment" without really understanding then.

1. Which entity of the corporation will make all of the decisions described below? I just need a short answer for this. (five points)
2. Assume the decision to declare a dividend to the three shareholders is being decided at the meeting of the board. Discuss what factors/facts the board will use to make that decision. You must state specific facts and/or factors that were used to support this decision. This cannot be something such as "we will use good business judgment", that is the standard, but what specific facts will be used to demonstrate good business judgment? This analysis must focus on how to protect the corporation from some future creditor arguing that the corporation did not act properly and the court should "pierce the corporate veil". The fact that there is a profit is only a minor factor, and almost irrelevant, in making this decision. (ten points).
3. Assume the decision to increase the CEO's salary is being decided by the board. Again, you must state the specific facts/things you considered in that decision making process. Think of this as any pay increase for any employee.(ten points).