Bible.com Investor Sues Company For Lack Of Profit 181
The board of Bible.com claims that it is easier for a camel to pass through the eye of a needle, than to make money on the domain name, but an angry shareholder disagrees. From the article: "James Solakian filed the lawsuit in Delaware's Chancery Court against the board of Bible.com for breaching their duty by refusing to sell the site or run the company in a profitable way. The lawsuit cites a valuation done by a potential purchaser that estimated bible.com could be worth more than dictionary.com, which recently sold for more than $100 million."
Re:As a matter of fact, you can (Score:5, Informative)
Not quite. Legally, the company is required to act in accordance with its charter. Typically, these say something like 'make as much money as possible by engaging in business X'. Sometimes they don't mention money at all, or in the case of companies that do the triple bottom line thing mention money as one of the objectives. When you invest in a company, you are saying that you agree with the company's mission.
Simply not doing the thing that makes the most profit for the shareholders is never grounds for a successful lawsuit. If it were, then every company performing below the top few percent of the stock market would be legally obliged to liquidate its assets and invest them all in one of the top companies.
Re:As a matter of fact, you can (Score:3, Informative)
IANAL
The court case Dodge v. Ford Motor Company [wikipedia.org] is often cited on Slashdot as the basis of this meme. The basis of the ruling was that Ford wanted to pay most of the money up front for a smelter plant in order to prevent the Dodge brothers from receiving a dividend and using it to create a competing car company. It wasn't that Ford Motor Company didn't make a profit, it was that Henry Ford was purposely diverting the funds to infrastructure expenditures in order to prevent a dividend from being paid to Dodge.
In fact in AP Smith Mfg. Co. v. Barlow (1953) [google.com] the court ruled against the shareholder when he sued AP Smith for donating money to Princeton University because:
In the light of all of the foregoing we have no hesitancy in sustaining the validity of the donation by the plaintiff. There is no suggestion that it was made indiscriminately or to a pet charity of the corporate directors in furtherance of personal rather than corporate ends. On the contrary, it was made to a preeminent institution of higher learning, was modest in amount and well within the limitations imposed by the statutory enactments, and was voluntarily made in the reasonable belief that it would aid the public welfare and advance the interests of the plaintiff as a private corporation and as part of the community in which it operates. We find that it was a lawful exercise of the corporation's implied and incidental powers under common-law principles and that it came within the express authority of the pertinent state legislation.
In my opinion the only reason that bible.com shareholder lawsuit may have merit was because the company paid their debt with shares of stock and not performing a good faith effort at repaying their debt or making the shares given worth the debt owed. The other compelling reason for the suit was the following (FTA):
The company's business plan stated "it is the goal of the board of directors of Bible.com to become very, very profitable," according to court documents. This is another important element of the shareholder suit, since the plaintiff must establish that the financial dealings done by the board run counter to the business plan agreed.
Please let this "corporations must make a profit or be sued" myth die. It all depends on the companies charter.
Re:There's an easy fix for this (Score:3, Informative)
No, directors have a legal obligation to put the company's interests ahead of their own, and a legal obligation to provide 'good faith' governance in accordance with the corporation's charter.
There is no legal obligation to 'maximize profit' for your shareholders unless the charter specifically says there is, and even then it needs to be balanced against numerous other goals. In addition, you cannot say "maximize profits" without a time context for doing so: if you maximize profits this quarter by hiring illegal immigrants to staff your factory, firing quality assurance and customer service reps, and selling off company fixtures. And then the firm will go out of business next quarter because it was managed poorly and unsustainably.
Thus the charter defines the goals, the board of directors and management sets strategy to achieve those goals, and employees implement those strategies. Nowhere in there is a "requirement" to "maximize profit" in any given time frame, or even at all.