Elise and Kim Are Trying to Decide How to Set

question 20

Essay

Elise and Kim are trying to decide how to set up the internal management structure of the corporation they have just incorporated to carry on their engineering consulting business.They each hold 35 percent of the shares, with the remaining 30 percent being held by five employees.Elise will run the business.She will be responsible for all aspects of the management of the office.Kim will be a passive investor, but is nevertheless interested in being kept informed regarding what is going on in the business.Kim and Elise decide that they will both be directors and then delegate all management powers to Elise, subject only to an obligation to report to the board every two months as to what is happening.Will this structure work? Support your answer.

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Definitions:

Common Stockholders

Individuals or entities that own shares in a corporation, granting them rights to dividends and a vote in certain corporate matters.

Rights Granted

Rights Granted refers to permissions or privileges given to an individual or entity, which allows them certain freedoms or abilities under specific conditions.

Noncumulative

A term often related to preferred stock, describing dividends that, if not declared by the board of directors, are not owed to shareholders and do not accumulate.

Preferred Stock

Preferred stock is a type of stock that gives holders preferential treatment over common stock, such as fixed dividends and priority in asset liquidation.