ABC Ltd owns 40% of the shares of XYZ Ltd, and holds the only substantial block of shares in that entity; no other party owns more than 3% of the shares. The annual general meeting of XYZ Ltd is to be held in one month’s time. Consider the following situation: “ABC Ltd will be able to elect a majority of XYZ Ltd.’s board of directors as a result of exercising its votes as the largest holder of shares. As only 75% of shareholders voted in the previous year’s annual meeting, ABC Ltd may have the majority of the votes that are cast at the meeting.” Required: Discuss the possibility for XYZ Ltd being classified as a subsidiary of ABC Ltd. Justify your answer with proper explanation.
ABC Ltd owns 40% of the shares of XYZ Ltd, and holds the only substantial block of shares in that entity; no other party owns more than 3% of the shares. The annual general meeting of XYZ Ltd is to be held in one month’s time. Consider the following situation: “ABC Ltd will be able to elect a majority of XYZ Ltd.’s board of directors as a result of exercising its votes as the largest holder of shares. As only 75% of shareholders voted in the previous year’s annual meeting, ABC Ltd may have the majority of the votes that are cast at the meeting.” Required: Discuss the possibility for XYZ Ltd being classified as a subsidiary of ABC Ltd. Justify your answer with proper explanation.
Chapter19: Corporations: Distributions Not In Complete Liquidation
Section: Chapter Questions
Problem 51P
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8. ABC Ltd owns 40% of the shares of XYZ Ltd, and holds the only substantial block of shares in that entity; no other party owns more than 3% of the shares. The annual general meeting of XYZ Ltd is to be held in one month’s time. Consider the following situation:
“ABC Ltd will be able to elect a majority of XYZ Ltd.’s board of directors as a result of exercising its votes as the largest holder of shares. As only 75% of shareholders voted in the previous year’s annual meeting, ABC Ltd may have the majority of the votes that are cast at the meeting.”
Required: Discuss the possibility for XYZ Ltd being classified as a subsidiary of ABC Ltd. Justify your answer with proper explanation.
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