Read the following scenario and answer the question in 5-7 sentences. You and tw
ID: 347983 • Letter: R
Question
Read the following scenario and answer the question in 5-7 sentences.
You and two friends own a small limousine service. You have incorporated and exist as a close corporation, with the three of you as the shareholders and directors. You have structured the business so that each of you is also an officer with a salary. Any income to the corporation that is not paid out in salary or used for operations is reinvested in the corporation to expand the business. You serve as President of the corporation and handle all of the hiring. Your friend, Anna, serves as Vice President of Marketing and Finance. She handles all of the marketing efforts and manages the accounts. The second friend, Elijah, serves as Vice President of Acquisitions. His job is to increase the number of cars you own and to manage the maintenance of the fleet. You come in to work one day and see a number of fairly new, but fairly beaten up, cars in the parking lot. You ask Elijah about them and he tells you that he bought them for the company. He explains that his friend, Mitchell, runs a business about 200 miles from your town. Mitchell called Elijah last night and offered him the cars at an unbelievably low price. Elijah agreed to buy them on the spot and faxed the signed contract to Mitchell. The cars arrived this morning. They are completely unusable for your business. Evaluate whether you can make Elijah reimburse the company for the cost of the cars.
Explanation / Answer
Elijah is working as vice president and director, besides being one of the shareholders of the corporation. Here, as per the doctrine of the respondent superior, any act done by Elijah, has to be covered and paid by the corporation. But, as a president of the corporation, an inquiry into the poor purchase decision and negligence of the set specification related to buying of the car is to setup. It will evaluate the conditions of the car and establish the actual losses (if any) taking place to the corporation on the basis of the price paid for the cars and the actual value of the car in the market. For this loss, Elijah will be held personally accountable as his action is negligent towards the company as well as a case of agency conflict. It will be structured to recover the losses as per the corporation guidelines if the corporation incurs losses.
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