1. Rights and privileges of common stockholders

Larry Nelson holds 1,000 shares of General Electric common stock. As a shareholder, he has the right to be involved in the election of its directors. These directors are responsible for managing the company and achieving the companys objectives.

True or False: Larry can invest in another company that is selling class A shares to the public, and class B shares will be retained by company insiders. This will help the founders maintain control in the company.

False

True

Larry also holds 2,000 shares of common stock in a company that only has 20,000 shares outstanding. Currently, the companys stock is valued at $50.00 per share. The company needs to raise new capital to invest in its future production activities. The company is anticipating issuing 5,000 new shares at a price of $40.00 per share. Larry worries about the value of his investment.

Larrys current investment in the company is worth

. If the company issues its new shares and Larry makes no additional investments in the company, then his investment will be worth

.

This scenario is an example of . Larry could be protected if the firms corporate charter includes a provision.

If Larry exercises the provisions in the corporate charter to protect his stake, his investment value in the firm will become