Question

1. Bixler obtained an option on a building he believed was suitable for use by a corporation he and two other men were organizing. After the corporation was successfully promoted, Bixler met with the Board of Directors who agreed to acquire the property for $200,000. Bixler deeded the building to the corporation and the corporation began business in it. Bixler's option contract called for the payment of only $155,000 for the building and he purchased it for that price. When the directors later learned that Bixler paid only $155,000, they demanded the return of Bixler's $45,000 profit. Bixler refused, claiming the building was worth far more than $200,000 both when he secured the option and when he deeded it to the corporation. Assuming that these statements are true, will he have to repay the $45,000? Fully explain.

2.  Quinn, Constance and Zak are recent college graduates who want to form a corporation to manufacture and sell personal computers. Constance tells them that she will set in motion the formation of their corporation. Constance first makes a contract with Oliver for the purchase of a parcel of land for $25,000. Oliver does not know of the prospective corporate formation at the time the contract is signed. Constance then makes a contract with Maddock to build a small plant on the property being purchased. Maddock's contract is conditional on the corporation's formation. Constance secures all the necessary subscription agreements and capitalization, and she files the articles of incorporation. A charter is issued. Is the newly formed corporation or Constance (or both) liable on the contracts with Oliver and Maddock, assuming that there are no other relevant facts?    Fully explain.

3. A company has 500 shares of no-par common and 100 shares of 5% preferred, $100 par value shares. In 2012, it had $8,000 that it could have legally distributed, but it chose not to. In 2013, $9,000 was available in additional funds, but once again the Board was cautious and declared no dividends. Finally at the end of 2014, when $10,000 remained, the Board decided that it was time to reward the shareholders. If the company decides to make the full amount ($27,000) available for dividends, how much does each share of preferred get? How much does each share of common get?

Answer 1

1. No, the company is not entitled to receive back $45000 as the contract was signed by the Bixler. For e.g.consider that Mr.A has entered an option contract to buy shares of XYZ co. at 100$ now during the maturity whatever may be the market value Mr.A has a right either to buy or reject the contract. Let's say Mr.A accepts the contract and suddenly next day the value of the stock goes up to $140 and Mr, A sold that stock to Mr B. Mr.B cannot claim money that Mr. A has bought it for 100$ as the contract had been entered by Mr.A and later Mr, A has a right to decide the price and whether to sell or not.
2. As the land is purchased before the incorporation of the company, the corporation is not liable for the land agreement as the company was inexistent at that time. Nut as Maddocks agreement was conditional that the plant was to be only built after the company is incorporated. Hence, in the case of Maddock both are liable.
3. A company always has an option to declare more dividend out of its free reserves. So this company can pay its Preference shareholders 5% of par value. That amounts to $5 per share * 100 shares= $500. Now, the company has $9500 of the current year and $17000 of the previous year that sums up to $26500/ 500 (no. of equity shares)= $53 per share. Preference shareholders got only $5 as their dividend is fixed