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Question 2 Xanadu Ltd wishes to raise $10 million through a share issue in order to finance the expansion of its business. The managing director
Question 2 Xanadu Ltd wishes to raise $10 million through a share issue in order to finance the expansion of its business. The managing director of Xanadu Lid, Chan, agrees to take up some of the shares in this fund raising exercise. The board proposes to allot 100,000 $10 shares to Chan at an issue price of $9 per share. Chan uses his own savings to pay for the first instalment. Chan's savings are comprised of salary received by him as managing director, and dividends received as a shareholder of Xanadu Ltd in the past year. Chan approaches Yippee Lid to borrow $600,000 to pay for the second instalment. Yippee Ltd agrees to finance Chan but only on condition that Zither Ltd transfers some land to Venus Ltd for Venus Ltd to develop the land into a hotel in a joint venture with Zither Ltd. Xanadu Ltd owns 100% of the shares in Zither Ltd. Yippee Ltd and Zither Ltd each own 50% of the shares of Venus Ltd. Advise Xanadu Ltd whether there are any legal problems with the proposals; if legal problems exist, consider whether there are any solutions to them
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