Brandon Ivey

Patrick O’ Laughlin
April 8th, 2011
Corporations Assignment 1
The actions taken by the Board of Directors of the Jackson Carpet Corporation arise some

serious issues of concern for shareholder’s rights, and the potential repercussions their actions

might bring upon the corporation.

The sale of the Santee property bought from Allen, is not a major issue because the

directors do not need shareholder approval to sell assets, if it will not constitute a significant

change in the total equity of all assets. The property was purchased at 30,000.00, but was sold for

significantly less which might anger shareholders because a profit was not made from this

unauthorized decision. However the decision will most likely be protected under the Business

Judgment Rule, because it was sold for the highest obtainable price on the market.

One serious issue that arises is the decision not to pay dividends to the shareholder at the

end of the year. Since the corporation appears solvent, and there is no stated agreement from

lenders not to pay dividends, the dividends can be paid from the appropriate corporate accounts.

The Board of Directors usually have the decision to whether to pay dividends, however this is

not a situation in which this decision making power will apply.

If at any time the directors state that they are going to pay dividends they will be held to

that decision, and the shareholders will have a debt owed to them. While the directors did not

directly say they are going to pay dividends the Articles of Incorporation clearly state, “The

corporation will distribute annually all earnings as dividends to the extent such distribution do

not impair the corporation’s capital.” Due to the fact that the directors wanted to use the
$45,000.00 of profits to expand, it is apparent that their capital is fine. Since the Articles of

Incorporation, have not been revised to remove that provisions, the directors have a duty to pay

those dividends. If they do not they will be subject able to a class action lawsuit on behalf of the

shareholders. This will be very detrimental to the corporations and directors image, and might

hinder possible business opportunities in the future.

Another issue is the disagreement about the sale of all assets and trademarks to Fantasia

Rugs, Inc. The directors were correct in presenting the sale for shareholder vote, because this

sale would constitute a significant change of the corporation. The directors did receive a majority

vote in favor of the sale so if they did actually go through with the sale there would only be on

issue they would have to address to avoid legal problems. The directors would have to uphold

the appraisal rights of the 15% of shareholders that did not want the sale to occur, but since the

sale was cancelled this is no longer an issue.

A dissolution can occur at any time for a variety of reasons; however certain conditions

must be met in order for the dissolution to be legitimate. The directors must agree either by

majority vote, or uniramous written agreement, then a majority vote from the shareholders must

also occur. If the majority of the shareholders accept the dissolution, then the dissenters may

enforce their appraisal rights. However the appraisal rights might not be enforceable because

those shareholders will be paid from the sale of the corporation’s assets. If the dissolution occurs

without a shareholder vote, the shareholders can once again file a class action lawsuit for the

denial of their appraisal and voting rights.