Question

AI Medical, Inc., is a private, for-profit corporation that is owned by six shareholders who are not members of the same family but are personally known to one another. They also serve as the directors and officers. To prevent a majority shareholder from dominating the firm, the corporation may do ?

Answer 1

To prevent a majority shareholder from dominating the firm, the corporation may employ strategies such as voting rights limitations, issuing different classes of stock, and implementing a board structure.

Step-by-step explanation:

To prevent a majority shareholder from dominating the firm, the corporation may employ certain strategies such as:

Voting rights limitations: The corporation may impose limitations on the number of votes that a single shareholder can cast, regardless of the number of shares they own. This ensures that no individual shareholder can have excessive control over the decision-making process.

Issuing different classes of stock: The corporation can issue multiple classes of stock, with different voting rights. For example, Class A shares may have more voting power than Class B shares. This allows the corporation to balance the influence of majority shareholders with other shareholders.

Implementing a board structure: The corporation can establish a board of directors with an appropriate composition that represents the interests of all shareholders. This can include independent directors who are not affiliated with any majority shareholders, ensuring a fair decision-making process.