• Your friend Earline has decided to incorporate her high-tech sole proprietorship. She believes that the corporation's prospects for growth are excellent because of its new and exciting innovations. To achieve this growth, however, capital from other investors will be needed. Earline has contributed all of the funds she can afford, but to gain more financing from the banks, the corporation must raise additional equity.
• To obtain the additional capital, Earline hopes to attract outside investors who currently are not involved in the business. As the controlling shareholder, however, she does not want to give them too much in return. Therefore, she plans to limit any new offering to nonvoting preferred stock. That way, the corporation, and Earline will raise capital without giving the new investors any control over the corporation's operations.
• What are the ethical and equity issues associated with Earline's plan?