Stuart holds 5,000 shares in Alco Ltd. He is one of 50,000 shareholders.

The board of directors (Board) has decided that the company needs to raise $50,000 of additional capital to renovate the premises occupied by the company, and to purchase a corporate jet for use by directors when on visits to agents and retail branches all over Australia.The proposal is that shares be issued to existing shareholders instead of a dividend being paid. The shareholders would be required to pay $1.00 for each new share issued to them.

The power of the Board to issue shares is contained in the company's constitution which follows the Replaceable Rules of the Corporations Act 2001 (Cth). It also specifically provides that the Board may issue shares "to improve the future earning capacity of the company". The Board is relying on this provision to authorize the share issue.Stuart and other shareholders are unhappy with this proposal and wish to voice their objections at an extraordinary general meeting.

Required:

a) Advise Stuart of the nature and scope of the Board's power to make this decision (10 marks), and

b) Whether the extraordinary general meeting could legally compel the Board to not proceed with the proposed share issue. (10 marks)

In your response give reasons and refer to sections of the Corporations Act 2001 (Cth) and cases where relevant.