Question

Wilcox, chief executive officer and chairman of the board of directors, owned 60 percent of the shares of Sterling Corporation. When the market price of Sterling’s shares was $22 per share, Wilcox sold all of his shares in Sterling to Conrad for $29 per share. The minority shareholders of Sterling brought suit against Wilcox demanding a pro rata share of the amount Wilcox received in excess of the market price. a. What are the arguments to support the minority shareholders’ claim for a pro rata share of the amount Wilcox received in excess of the market price? b. What are the arguments to reject the minority shareholders’ claim for a pro rata share of the amount Wilcox received in excess of the market price? c. Which side should prevail?

Answer 1

Answer:

Sterling Corporation

a. Arguments to support the minority shareholders' claim include:

1. If there is a provision to this effect in the Shareholders' agreement,

2. If the minority shareholders can prove that Wilcox oppressed the minority shareholders by selling off his shares in the corporation, and

3. If the Shareholders' agreement forbids Wilcox from selling off his shareholdings.

b. The arguments to reject the minority shareholders' claim include:

1. As the majority shareholder, Wilcox dictates the direction of firm until the sale-off.

2. Wilcox is within his rights to sell his shares to Conrad.

3. Wilcox does not oppress the minority shareholders with the sale to Conrad.

c.  Wilcox should prevail.  Apparently, he did not act illegally or contrary to agreement.

Step-by-step explanation:

Shareholding of Wilcox (chief executive officer and chairman of the BOD) = 60%, which is > 50%.

Shareholding of Minority shareholders = 40%, which is <50%

Market price per share of Sterling Corporation = $22

Selling price of Wilcox's shares = $29

Excess of the market price = $7 ($29 - $22)