Todd and Elaine purchased for $300,000 a building that was used for manufacturing pianos.
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Todd and Elaine purchased for $300,000 a building that was used for manufacturing pianos. Then, as promoters, they formed a new corporation and resold the building to the new corporation for $500,000 worth of stock. After discovering the actual purchase price paid by the promoters, the other shareholders desire to have $200,000 of the common stock canceled. Can they succeed in this action? Why or why not? |
Explanation
The promoters Todd and Elaine paid $300,000 for a building, which they later sold to the company for $500,000. Later, company officials discovered and decided to cancel the stock, which was worth $200,000 at the time.
The promoter of the company or establishment should act with extraordinary confidence and faith in the firm's or establishment's development.
Todd and Elaine are the promoters of the firm in the example above, and after the incorporation, the promoters sold the building to the company by novation for more than the market value. Therefore, firm executives have the authority to retrieve the excess funds, and Todd and Elaine acted unethically.
Answer
Todd and Elaine are the promoters of the firm in the example above, and after the incorporation, the promoters sold the building to the company by novation for more than the market value. Therefore, firm executives have the authority to retrieve the excess funds, and Todd and Elaine acted unethically.
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