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Samantha Is an Architect, and She Is Also the Sole

question 6

Essay

Samantha is an architect, and she is also the sole shareholder of Sam's Gifts Inc. She wants to semi-retire from the gift business soon and her three employees have all expressed great interest in taking over the company, although they do not have the financial resources necessary to make the purchase at this point in time. However, Samantha is not in a hurry to receive the proceeds from the business as she will continue with her architectural work for another five years.
Samantha has heard about something called a 'share reorganization' and she has asked you to explain what it means and if it would apply to her situation.
Required:
A) Explain what a share reorganization is, and if it would be useful for Samantha in her plans to semi-retire from her gift store.
B) What is a significant risk factor that might be involved with a share reorganization?

Definitions:

Diluted Earnings

Represents the earnings per share (EPS) if all convertible securities were converted into common stock.

Dilutive

Referring to a financial action or arrangement, such as the issuance of new shares, that decreases an existing shareholder's percentage of ownership.

Antidilutive

Refers to financial transactions or securities that, if exercised or converted into common stock, would increase earnings per share.

Treasury Stock Method

An accounting method used to calculate the number of shares outstanding when considering stock options and warrants, assuming these are exercised and the treasury stock is sold.