The Legal Environment of Business: Text and Cases (MindTap Course List)
10th Edition
ISBN: 9781305967304
Author: Frank B. Cross, Roger LeRoy Miller
Publisher: Cengage Learning
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Chapter 28, Problem 2BS
Summary Introduction
Case summary: Company HC has 30,000 common shares that are outstanding. The shareholders belong to several states. The company planned to split its 30,000 shares as two for one.
To find : The need to register the 30,000 shares after the spilt.
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Mini Case Debt vs Equity Holders
Companies obtain their funds from two sources: debt and equity. The providers of these funds are protected in different ways. Debt holders have specific contracts with the company, and if the company defaults, they have recourse ahead of shareholders.
Shareholders are the bearers of residual risk and in return for the uncertainty this creates, equity finance is more expensive than debt finance – reflecting the risk premium and risk appetite of the shareholders. But, because the shareholders come last and it is not clear what they are entitled to, they operate in conditions of an incomplete contract.
Question:
If the shareholder’s position is not protected by a contract – unlike the provider of debt- how is it in fact made viable? Discuss
true or false
1. Captive insurer may be used to insure loss exposures that the parent firm finds it difficult to insure with private insurers.
2. Ali incorporated his business so that he has unlimited liability to shield him against personal liability claim by the creditors
3. For the safety of the residents of the apartment, a barrier is installed at the entrance of the apartment. Only the vehicles belong to the residents are allowed to pass through. This physical barrier system is a risk management technique called loss prevention
4. Applying first-aids to an injured worker while waiting for an ambulance to send him to hospital is a risk management technique called salvage.
art IScenario IAgroVate, a Delaware corporation, is the target of a bid from Bijoux. Bijoux had originally approached AgroVate’s board with an offer to buy the company, but AgroVate turned down the offer. Now, in newspaper ads and direct mail to shareholders, Bijoux has initiated a tender offer to shareholders well above market price.The Board of Directors of AgroVate consists of the three Maxxo brothers, Happy, Dopey and Sleepy, as well as eight other directors who are not related to the Marx Brothers. AgroVate’s bylaws provide that eight directors constitute a quorum.Manly Pearson, the president of Bijoux, wants to take control of AgroVate and merge it with Bijoux. He plans to replace the current board and sell off AgroVate’s widget finishing division, which he thinks is dragging the company down. Pearson has no interest in the widget business; Bijoux makes service uniforms; Pearson simply sees the takeover as a business…
Chapter 28 Solutions
The Legal Environment of Business: Text and Cases (MindTap Course List)
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Similar questions
- Which of the following statements about the Securities Act of 1933 is not true?(1) The third-party user does not have the burden of proof that she/he relied on thefinancial statements.(2) The third party has the burden of proof that the auditor was either negligent orfraudulent in doing the audit.(3) The third-party user does not have the burden of proof that the loss was causedby the misleading financial statements.(4) The auditor will not be liable if he or she can demonstrate due diligence inperforming the audit.arrow_forwardDuring an audit of a publicly held company, the auditor should obtain written confirmation regarding debenture transactions from the(1) debenture holders. (3) internal auditors.(2) client’s attorney. (4) trustee.arrow_forward66) As a governance mechanism the “threat of takeover” refers to: a) The risk that the government might acquire the firm b) The danger that the firm might be acquired by others who offer the stockholders better management of the firm. c) Both A and B d) Neither A nor Barrow_forward
- Noodleoo, a struggling restaurant chain, wants to enact a franchise agreement with Stephen to sell its product through a chain-style franchise. Stephen agrees and opens the store, and 6 months later Noodleoo goes bankrupt. Which is most likely true of this situation? Stephen was not responsible for looking into the financial status of Noodleoo before making the agreement. The Franchise rule does not apply to struggling companies. If Noodleoo was not transparent with its financial data, Stephen has no recourse. If Noodleoo was not transparent with its financial data, it has broken the Franchise Rule.arrow_forwardtrue or false 1. Ali incorporated his business so that he has unlimited liability to shield him against personal liability claim by the creditors 2. Applying first-aids to an injured worker while waiting for an ambulance to send him to hospital is a risk management technique called salvage. 3. Deductible can be used to retain property losses 4. Removing undamaged inventories from a burnt warehouse is a risk management technique called rehabilitationarrow_forwardThe “Compliance with Standards Rule” requires that a member who performs professional services, including consulting services, comply with standards promulgated by bodies designated by Council, regardless of whether the member is holding out as a CPA. The standards applicable to members performing consulting services are set forth in the Statements on Standards for Consulting Services (SSCSs) and specifically state that such standards apply to members holding out as a CPA while providing consulting services. Would a member who does not hold out as a CPA be in compliance with “Compliance with Standards Rule” if the member did not comply with the SSCSs while performing consulting services for a client? Yes or Noarrow_forward
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