Question

Terra Corp. is incorporated in Florida with its principal office in Destin. Phyllis is the president of Terra Corp. and owns 51% of its shares. A potential buyer approached Phyllis with an offer to purchase her shares. The buyer offered Phyllis an additional bonus if Phyllis would step down from her office as president. Phyllis approached her attorney to determine whether the agreement to sell her shares is valid. The attorney should advise Phyllis that:

Answer 1

Answer: The agreement breaches Phyllis's fiduciary duty of loyalty as an officer of the corporation.

Explanation:

The attorney should advise Phyllis that the agreement breaches Phyllis's fiduciary duty of loyalty as an officer of the corporation.

The duty of loyalty forbids an officer from having his personal interests above that of the corporation. In this situation, accepting a bonus in order to give up the presidency simply means the officer has out his interest above those of the corporation, hence this is a breach of duty.