Here is a business law scenario case. Anyone can help? Thanks!
MT, Inc., a 2-year old start-up company headquartered in XX and specializing in GPS software development, has outstanding 400 shares of $100 par value common stock, which has been issued and sold at $105 per share for a total of $42,000. The State of Delaware, where MT is incorporated, has adopted the earned surplus test for all distributions. MT is aggressively courting a multi-million dollar venture capital investment from X Capital XX LLP, to commercialize a number of patents that are among MT’s assets, which amount to $65,000. MT's liabilities to creditors total $10,000. At the same time, MT’s board learns that an original investor who holds 100 of the 400 shares of stock, is planning to sell shares on the open market for $10,500. Believing that this will not be in the best interest of the corporation, MT’s board offers to buy the shares for $10,500 and original investor agrees. About six months later, when the assets of the corporation have decreased to $50,000 and its liabilities, not including its liability to the original investor, have increased to $20,000, the directors use $10,000 to pay a dividend to all of the shareholders. The corporation later becomes insolvent.
(a) Does the original have any liability to the corporation or its creditors in connection with the corporation’s reacquisition of the 100 shares?
(b) Was the payment of the $10,000 dividend proper?
MT, Inc., a 2-year old start-up company headquartered in XX and specializing in GPS software development, has outstanding 400 shares of $100 par value common stock, which has been issued and sold at $105 per share for a total of $42,000. The State of Delaware, where MT is incorporated, has adopted the earned surplus test for all distributions. MT is aggressively courting a multi-million dollar venture capital investment from X Capital XX LLP, to commercialize a number of patents that are among MT’s assets, which amount to $65,000. MT's liabilities to creditors total $10,000. At the same time, MT’s board learns that an original investor who holds 100 of the 400 shares of stock, is planning to sell shares on the open market for $10,500. Believing that this will not be in the best interest of the corporation, MT’s board offers to buy the shares for $10,500 and original investor agrees. About six months later, when the assets of the corporation have decreased to $50,000 and its liabilities, not including its liability to the original investor, have increased to $20,000, the directors use $10,000 to pay a dividend to all of the shareholders. The corporation later becomes insolvent.
(a) Does the original have any liability to the corporation or its creditors in connection with the corporation’s reacquisition of the 100 shares?
(b) Was the payment of the $10,000 dividend proper?
Last edited by a moderator:
