Decision Point: Losing Control?

Although you, Javier, and Hershel have each contributed $$10,000$ to initially capitalize the company, you are going to need millions in order to build infrastructure and hire employees. You approach several investment banking firms and are successful in obtaining $$10$ million in funding, but in exchange, the firm requires $51\%$ of Splitrock's stock. Javier and Hershel are concerned that they will lose control of the management of the company's operations. What is your response to them?

Select an option from the choices below and click Submit.

Javier and Hershel have reason to be concerned. If you allow the investment banking firm to have $51\%$ of the corporation, it can elect the directors of its choosing, who can then appoint new officers.

As a shareholder, the investment firm will have no management over the operations of the company.

The investment firm cannot control the composition of the board of directors; therefore, it will not control the management of the company.