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A firm has arranged financing from shareholders of Rs 30 million. One of the sponsors owns 50% of the shares and has been appointed as

A firm has arranged financing from shareholders of Rs 30 million. One of the sponsors owns 50% of the shares and has been appointed as Chief Executive Officer of the Company. There are 5 other sponsors who own 10% shares each.

The firm arranged Rs 30 million as long-term loans taking the total assets to Rs 60 million. In the view of management the amount contributed by shareholders and raised from creditors was sufficient to support the business in its initial days and until the business turns into profits.

One of the five sponsors who owns 10% of the shares is interested to sell his holding to another investors.

You are requested to advise the investor (interested in purchase of 10% shares) on the common issues that he might experience given the present ownership and borrowing structure.

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