XYZ Inc Owns 55% of DEF's 100,000 Outstanding Voting Shares

question 53

Multiple Choice

XYZ Inc. owns 55% of DEF's 100,000 outstanding voting shares. Another company, GHI Inc., owns 40%, with the remaining shares being held by many individual investors. GHI Inc. also owns $25,000,000 worth of DEF Inc.'s $1,000 par value bonds, each of which is convertible to one voting share of DEF Inc. Which of the following statements regarding the control of DEF Inc. is correct?

• A) XYZ Inc. has control over DEF Inc. as it owns a majority of the latter's currently outstanding voting shares.
• B) XYZ Inc. does not have control over DEF Inc., as it cannot exercise control over DEF's strategic operating, investing and Financing activities without the cooperation of GHI Inc.
• C) XYZ Inc. has de facto control over DEF Inc.
• D) As long as GHI Inc. does not exercise its option to convert its bonds to voting shares, XYZ Inc. has control over DEF Inc.

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