Editing Business Associations
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** '''Entire or Intrinsic Fairness''' would apply | ** '''Entire or Intrinsic Fairness''' would apply | ||
*** Shifts the burden of proof to the Defendant-Directors & Controlling Stockholder to prove that what they did is intrinsically fair to the Corporation and its minority stockholders | *** Shifts the burden of proof to the Defendant-Directors & Controlling Stockholder to prove that what they did is intrinsically fair to the Corporation and its minority stockholders | ||
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* ''Sinclair Oil v. Levien—''Sinclair using its dominance over subsidiary | * ''Sinclair Oil v. Levien—''Sinclair using its dominance over subsidiary | ||
** Parent company (Sinclair) owned 97% of subsidiary-Sinven (minority owned remaining 3%) | ** Parent company (Sinclair) owned 97% of subsidiary-Sinven (minority owned remaining 3%) | ||
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** Minority Stockholder wanted to participate in the '''''Control Premium''''' that Controlling Shareholder group was about to receive when they sold their controlling stake | ** Minority Stockholder wanted to participate in the '''''Control Premium''''' that Controlling Shareholder group was about to receive when they sold their controlling stake | ||
** Rule- Minority shareholders are entitled to protection from abuse by controlling stockholders, BUT CANNOT inhibit other stockholders' legitimate interests. Shares of stock are personal property which could be sold to whomever you please, for whatever price you please | ** Rule- Minority shareholders are entitled to protection from abuse by controlling stockholders, BUT CANNOT inhibit other stockholders' legitimate interests. Shares of stock are personal property which could be sold to whomever you please, for whatever price you please | ||
*** For this reason, there is a Premium—The added amount an investor is willing to pay for the privilege of directly influencing the corporation's affairs (acquiring control) | *** For this reason, there is a Premium—The added amount an investor is willing to pay for the privilege of directly influencing the corporation's affairs (acquiring control) | ||
*** Exceptions- Contractual Provisions allow minority to piggy-back | *** Exceptions- Contractual Provisions allow minority to piggy-back | ||
**** "Tag Along" Provision | **** "Tag Along" Provision | ||
Minority shareholder gets to tag along with any sale by a controlling stockholder of its stake to some 3rd party | |||
They get to pro rate participate in that sale by contributing some of their shares to be sold | |||
**** "Drag Along" Provision | **** "Drag Along" Provision | ||
***** Most time the 3<sup>rd</sup> party doesn't want to just buy the controlling stake, but rather want to buy everything | ***** Most time the 3<sup>rd</sup> party doesn't want to just buy the controlling stake, but rather want to buy everything | ||
****** So it's not unusual to see this provision that says "if the controlling stockholder finds a 3<sup>rd</sup> party to buy its stake, contractually it can drag along all the minority stockholders and force them to sell as well at the same price the controller is receiving" | ****** So it's not unusual to see this provision that says "if the controlling stockholder finds a 3<sup>rd</sup> party to buy its stake, contractually it can drag along all the minority stockholders and force them to sell as well at the same price the controller is receiving" | ||
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<div>'''FORWARD & REVERSE STOCK SPLITS'''</div> | <div>'''FORWARD & REVERSE STOCK SPLITS'''</div> | ||
'''''Forward Stock split''''' | * '''''Forward Stock split'' ''' Take one expensively priced share and break it into pieces that will decrease the price per piece. | ||
2-for-1 Stock Split—Ex: If you own 1 share valued at $100 – via the stock split you would have 2 shares worth $50. | |||
Purpose: | |||
1. Makes stock more affordable to public | |||
There is more demand for a slice of pizza than there is for a whole pie. | |||
This is good, because you don't lose anything and it makes it more affordable for people to buy stock and the company becomes better off financially. | |||
2. This is a good sign to the public | |||
People recognize that the company is doing so well that the value of your stock is so high and that you have to lower your stock price in order to make it more affordable | |||
* Reverse Stock split (Negative symbol in the marketplace) | |||
** Combining shares into one bigger, more expensive share | |||
8 slices of pizza that you want to put back together. Sprinkle cheese and put it back in the oven, the cheese melts and the slices become one. | |||
** <u>'''Purpose:'''</u> | |||
*** '''1. Maintain listing on Index (Nasdaq; NYSE; S&P)''' | |||
**** Your stock, due to poor performance, is selling very low. | |||
**** If you are listed on NASDAQ they don't allow pooly performing stocks like that to be listed and you will be delisted. So, you combine shares into one bigger more expensive share. | |||
**** Ex: If you have 3 shares of stock worth $2 each. After the reverse split you have 1 share at $6 | |||
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* | ** | ||
** | *** '''2. It looks better, and people think it's a better company''' | ||
* | **** BUT a reverse stock split is a negative symbol in the market place – Your stock won't sell at $6, because people recognize that it is just smoke and mirrors and it will really only sell at $5.86 or something like that. | ||
*** '''3. To squeeze out minority shareholders ''' | |||
**** Giving 1 share for every 10,000 shares would do this. For shareholders that have less than 10,000 shares would end up with less than 1 share. You can't own a fraction of a share so the minority shareholders get cashed out and squeezed out. | |||
***** Ex: Assume a company has shareholder A, B, and C | |||
****** A- 1000 shares | |||
****** B and C- 100 shares each | |||
* | ****** Shareholder A can do a reverse sock split that gets rid of minority stockholders by doing a "1 for 1000 split" | ||
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==DERIVATIVE CLAIMS== | ==DERIVATIVE CLAIMS== |