Question

In: Economics

Consider the following stock ownership situation (Taylor & Greenlaw, 2014, p. 403). Investor 1: 20,000 shares...

Consider the following stock ownership situation (Taylor & Greenlaw, 2014, p. 403).

Investor 1: 20,000 shares

Investor 2: 18,000 shares

Investor 3: 15,000 shares

Investor 4: 10,000 shares

Investor 5: 7,000 shares

Investors 6 – 11: 5,000 shares each

What is the minimum number of investors it would take to vote to change the top management of the company?

Which investors would this involve?

In 1-2 paragraphs discuss if any one investor would be able to make corporate changes without the agreement of the other investors.

Expert Solution

If we count the shares of all the investors i.e from investor 1 to 11 it sums up to 1,00,000.

If investors want to make any changes in the top management they need more the more than 50% votes assuming each share is equivalent to one vote. So, minimum number of investors needed to change the top managemnt is 3 i.e from investor 1 to investor 3.

Investor 1 = 20,000

Investor 2 = 18,000

Investor 3 = 15,000

its sums up to 53,000 which is 53% of total votes.

In the given situation, any one investor will not be able to make any corporate changes without the agreement of the other investors as maximum vote percentage which any single investor possess is 20%(20,000 shares). But as we know that there are millions of shareholders, these shareholders choose board of directors whose motive is think about the benefits of shareholders. These shareholders are appointed through the votes of company's shareholders. So, more share means more votes which means more power to influence selection of board of directors. So, in this way our investor 1 with 20% ownership can have a vital impact in the selection of board of directors. But individually he may not be able to make huge corporate changes without the support of other investors.

Rahul Sunny answered 2 years ago

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