Apeepleco Inc., a start-up company headquartered in San Francisco, CA and specializing in online networking and commercial
Question:
Apeepleco Inc., a start-up company headquartered in San Francisco, CA and specializing in online networking and commercial opportunity development for start-up businesses is looking to expand their client base and hire additional coders to further develop their proprietary algorithm. Apeepleco was founded by former Linkedin executives who wanted to develop a better platform for commercial users. Apeepleco is small, but growing, and has more than 5 million daily users, but needs more cash to grow. Apeepleco has outstanding 500 shares of $100 par value common stock, which has been issued and sold at $105 per share for a total of $52,500. The State of Delaware, where Apeepleco is incorporated, has adopted the earned surplus test for all distributions. Apeepleco is aggressively courting a multi-million dollar venture capital investment from Capitol Capital Investors, LLP, to commercialize a number of software innovations that are among Apeepleco’s assets, which amount to $105,000. Apeepleco’s liabilities to creditors total $30,000. In July 2022, Apeepleco’s Board learns that Anupa Desphande, an original investor who holds 100 of the 500 shares of stock, is planning to sell her shares to RustCo., a competitor to Capitol Capital Investors for $20,000. Believing that this will not be in the best interest of the corporation, Apeepleco’s Board offered to buy the shares for $20,000 and Anupa sells in August 2022. By October 2022, when the assets of the corporation have decreased to $85,000 and its liabilities, not including its liability to Anupa, have increased to $46,000, the directors use $10,000 to pay a dividend to all of the shareholders. At the same time, the Board rejects a takeover bid from RustCo. (now a 5% shareholder) to buy all outstanding shares for $90/share. By January 2023, Apeepleco is forced to file for bankruptcy. The remaining shareholders sue the Board of Directors claiming mismanagement. You have been tasked with preparing a business memorandum discussing whether a court would conclude the Apeepleco Board violated the Business Judgement Rule when it (1) bought the shares from Anupa; (2) when it paid the October dividend or (3) rejected RustCo’s takeover bid.
Financial Accounting Tools for business decision making
ISBN: 978-0470534779
6th Edition
Authors: Paul D. Kimmel, Jerry J. Weygandt, Donald E. Kieso