Question
18. The Fair Corporation decided that it needed to raise additional capital in order to improve its operations.The Board of Directors evaluated their finances and
18. The Fair Corporation decided that it needed to raise additional capital in order to improve its operations.The Board of Directors evaluated their finances and determined that a combination of short term and long term borrowing was appropriate.As a result of this action, no dividends will be available to pay shareholders for several years because debt will have to be repaid.A group of shareholders made a demand that the Board reverse this decision, asserting that the Directors lacked the power to make such a decision without shareholder approval.Which is correct?
a.Whether the shareholders have a right to make a demand on the Board will depend on whether the shareholders own common shares or preferred shares.
b.The Board's decision wasultra viresbecause shareholder approval is required due to the amount of debt incurred being an extraordinary corporate transaction.
c.The Board can refuse to comply with the shareholders' demand because the Board's decision is within the inherent power of the corporation and borrowing is a proper function of the Board.
d.If the Board refuses to comply with the shareholders' demand, the shareholders are entitled to bring a derivative suit against the Fair Corporation.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access with AI-Powered Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started