*Note this is one question with four parts, not four seperate questions Instruct
ID: 1170458 • Letter: #
Question
*Note this is one question with four parts, not four seperate questions
Instructions
One of The Bluth Company’s (“TBC”) chief competitors, Stan Sitwell, purchases some stock in TBC (because some TBC shareholders decided to unload their shares because they wanted the cash). TBC has adopted cumulative voting of shares. At the next shareholder meeting, Stan wants to exercise as much influence as possible and hopefully get one of his trusted advisors onto the board of directors of TBC. Stan owns 100,000 shares of TBC (out of a total of 1,000,000 outstanding shares), and there are 4 directorships up for election. All of the other shareholders besides Stan will vote an equal number of shares for each open directorship. The federal government sues TBC for taking federal funds to build a wall between the U.S. and Mexico and then failing to build the wall. The government sues TBC, but also each individual shareholder of TBC under the doctrine of piercing the veil. TBC has done a good job of holding annual meetings of directors and shareholders.
However, certain TBC shareholders (namely, George Bluth, Lucille Bluth, Lindsay Funke, and Gob Bluth) have used the corporation’s bank account for personal reasons repeatedly. Stan Sitwell has never done this, however. Stan decides that he wants to own all of TBC, but the TBC directors don’t think it’s a good idea to sell to Stan, so Stan decided to make a tender offer directly to the TBC shareholders.
Please answer the following questions:
Is Stan guaranteed to be able to gain a seat on the board of TBC? Explain why or why not.
Will the federal government be able to recover under its lawsuit against Stan personally? (i.e. not just from the corporation, but from his own individual wealth?) Why or why not?
Discuss three ways the TBC directors could try to defend against Sitwell’s tender offer and keep him from acquiring control of the company.
*Note this is one question with four parts, not four seperate questions
Instructions
One of The Bluth Company’s (“TBC”) chief competitors, Stan Sitwell, purchases some stock in TBC (because some TBC shareholders decided to unload their shares because they wanted the cash). TBC has adopted cumulative voting of shares. At the next shareholder meeting, Stan wants to exercise as much influence as possible and hopefully get one of his trusted advisors onto the board of directors of TBC. Stan owns 100,000 shares of TBC (out of a total of 1,000,000 outstanding shares), and there are 4 directorships up for election. All of the other shareholders besides Stan will vote an equal number of shares for each open directorship. The federal government sues TBC for taking federal funds to build a wall between the U.S. and Mexico and then failing to build the wall. The government sues TBC, but also each individual shareholder of TBC under the doctrine of piercing the veil. TBC has done a good job of holding annual meetings of directors and shareholders.
Explanation / Answer
Answers:
Answer to 1)
The amount of shares that one owns has nothing to do with selection as board member. In fact a large percentage can even hinder the chances of becoming a board member. On the other hand if there is a large stake in the company, say 5% or more, this can be used as a influence to push one or one’s associates to become the member of the board.
So, in this case, Stan owns 100,000 shares out of a total of 1,000,000 outstanding shares. If we consider 5%, it is 50,000 and Stan owns more than 5%. Hence he can be guaranteed to become the member of the board.
Answer to 2)
Here the federal government can’t sue Stan or recover its lawsuit against Stan personally. This is because it is only few of the other shareholders who had used the corporation’s funds for their personal reason and the article says that Stan Sitwell has never done this. Though he is one of the shareholders, he has no role in using the government or corporation’s funds. However it is necessary for Stan to prove himself on those grounds to avoid him from getting punished.
Piercing the corporate veil is a situation where the courts put aside limited liability and hold the shareholders or directors personally liable for corporation’s actions or debts.
Answer to 3)
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