Asked by Nefetiti Easter on Jul 28, 2024
Verified
Townsend Ltd. has the following shareholders: Palermo Co.-60%
Nix Ltd.-30%
Riley Ltd.-10%
Nix has two seats on Townsend's five-person board of directors. Which of the following statements is true?
A) Nix has significant influence over Townsend.
B) Nix has control over Townsend.
C) Townsend is a special purpose entity to Nix.
D) Nix should treat Townsend as a passive investment.
Board of Directors
A group of individuals elected by shareholders to oversee the management and governance of a corporation.
Shareholders
Individuals or entities that own shares in a corporation, giving them certain rights and a stake in the company's performance.
- Recognize significant influence and control indicators in investment relationships.
Verified Answer
BR
brenden raizolaJul 30, 2024
Final Answer :
A
Explanation :
Nix's 30% ownership and two seats on the board give them significant influence over Townsend's decisions, but they do not have full control (which would require at least 50% ownership). Townsend is a separate entity and not a special purpose entity to Nix. Nix should not treat Townsend as a passive investment, as they have a significant ownership stake and board representation.
Learning Objectives
- Recognize significant influence and control indicators in investment relationships.