Shareholders' Meeting

Shareholders Meeting: A meeting, usually annual, of all shareholders of a

corporation to elect the Board of Directors and hear reports on the
company's business situation.

Scenario
Patty and Tonya started a partnership business “Maxwell’s Café and
Gourmet Chocolates” on October 20th 2006. The partnership was an instant
success. Since they were able to pool more resources together than a sole
proprietorship their business got off to an excellent start. Also, since Patty
and Tonya’s skills complemented one another they were able to make wise
business decisions.

Due to the success of the partnership by 2008 they were able to expand to an
additional four locations in Waterloo region and two in Toronto. Since their
business became so large Patty and Tonya became worried about Unlimited
Liability. This means that if something went wrong with the partnership then
Patty and Tonya would stand to lose not only their initial investment but
also their personal assets (house, car etc.). For these reasons they decided to
incorporate.

They were worried about the government regulations, and costly and
elaborate process of setting up a corporation. Also, since corporations have
democratic management they now must consult the shareholders before
making major decisions. Since they control a large portion of the shares,
they have been elected to the “Board of Directors”. They have now called a
shareholders meeting to make some announcements and have a vote on
some important issues with the other shareholders. After the announcements
the shareholders will be free to voice any questions or concerns.

After each issue to be voted on is raised, the “Board of Directors” will give
their recommendation if any. The shareholders will be free to comment with
their opinions. A vote of the shareholders will be undertaken to determine
which course of action will be taken. Any shareholder may decide not to
vote on an issue if they so choose.
Board of Directors
As Board of Directors you should start by making a few announcements:
1. In the last year, the company has made $500,000 in profits
2. All Waterloo region locations and one of the Toronto locations are
making a profit. The other Toronto location started out making a profit
but has recently been losing money.
3. Each share in the company is now worth $50.00. Since you purchased
the shares at $30.00 you have made $20.00 per share in capital gains.
Decisions to be made by Board of Directors:
1. One of the Toronto locations started out making a profit, but in the last
year has been losing money. Should we close this location or keep it
running?
2. Should we open 3 additional locations in Toronto, Kitchener, and
Hamilton. This will cost $200 000, but could make money if successful.
3. It has recently been determined that five jobs at each location are not
necessary. Should we dismiss these workers and save $2,000 per month?
Or should we keep these workers?
4. Should the profit of $500 000 be reinvested in the corporation or issued
to the shareholders as dividends?
Issues to be voted on:
1. Should we spend $20 000 to upgrade our computers to a more efficient
system?
2. Should we buy $50 000 worth of shares in another smaller corporation
which is very similar to “Maxwell’s Café and Gourmet Chocolates” so
that we control that company?
3. We have discovered that some of the chocolates we sell are made using
cocoa from the Ivory Coast using forced child labour. Should we stop
using this chocolate and pay more for a different brand, or should we
continue to use the cheaper chocolate from the Ivory Coast?

Any additional issues the Board of Directors may want to have a vote on
will be raised. Final comments from shareholders will be made, and the
meeting will be closed.

Shares outstanding - 100 000 Equity $5 000 000

Price Per Share - $50 Cash position - $530 000
Assets - $7 000 000 Current Liabilities - $130 000
Liabilities $2 000 000
What sunk costs are associated with opening a new location?

Other than cash, what assets might Maxwell's own?

20 Shares 20 Shares 50 Shares 50 Shares 50 Shares 50 Shares

100 Shares 100 Shares 100 Shares 200 Shares 200 Shares 200 Shares

300 Shares 300 Shares 300 Shares 400 Shares 400 Shares 400 Shares

500 500 Shares 500 Shares 600 Shares 600 Shares 700 Shares
Shares

700 Shares 800 Shares 1000 1000 1200 1200

Shares Shares Shares Shares

1500 1500 2000 2000 3000 15000

Shares Shares Shares Shares Shares Shares

4000 4000 5000 5000 7000 10000

Shares Shares Shares Shares Shares Shares

Note: A sunk cost is a cost that an entity has incurred, and which it can no
longer recover. Sunk costs should not be considered when making the decision
to continue investing in an ongoing project, since these costs cannot be
recovered.