Conner learned that James, Lucas, and Andrea were planning to form a corporation for the purpose of manufacturing and marketing automobile accessories to wholesale outlets. Conner had patented a self-locking gas tank cap but lacked the financial backing to market it profitably. He negotiated with James, Lucas, and Andrea, who agreed to purchase the patent rights for $5,000 in cash and 200 shares of 8 percent preferred stock in the Corporation they were forming. The corporation was formed and Conner’s stock issued to him, but the corporation has refused to make the cash payment. The corporation had no earnings or profits in 2015. In 2016, the corporation had large profits and a surplus from which it might properly have declared dividends. The directors refused to do so, however, instead using the surplus to purchase goods necessary for the corporation’s expanding business. The corporation earned a small profit in 2017. The directors at the end of 2017 declared a 10 percent dividend on the common stock and an 8
percent dividend on the preferred stock without paying preferred dividends for 2016. It is selling the remainder of the originally authorized issue of preferred shares, ignoring Conner’s demand to purchase a proportionate number of these shares.”
“a) Is Conner entitled to dividends for 2015? For 2016, why or why not?”
“b) Is Conner entitled to a dividend of 10% rather than 8% in 2017 why or why not?”
“c) Is conner entitled to the $5,000 why or why not , explain fully?”
“d) Is Conner entitled to purchase a proportionate number of shares, why or why not?”
