XYZ Inc. owns 55% of DEF Inc.'s 100,000 outstanding voting shares. Another company, GHI Inc., owns 40%, with the remaining shares being held by many individual investors. GHI Inc. also owns $25,000,000 worth of DEF Inc.'s $1,000 par value bonds, each of which is convertible to one voting share of DEF Inc. Which of the following statements regarding the control of DEF Inc. is correct?
A) XYZ Inc. has control over DEF Inc. as it owns a majority of the latter's currently outstanding voting shares.
B) XYZ Inc. does not have control over DEF Inc., as it cannot exercise control over DEF's strategic operating, investing and Financing activities without the cooperation of GHI Inc.
C) XYZ Inc. has de facto control over DEF Inc.
D)As long as GHI Inc. does not exercise its option to convert its bonds to voting shares, XYZ Inc. has control over DEF Inc.

Question

Quizplus · Accepted Answer

While XYZ Inc. owns a majority of DEF Inc.'s voting shares, it cannot exercise control over DEF's strategic operating, investing, and financing activities without the cooperation of GHI Inc., which owns 40% of the voting shares and $25,000,000 worth of convertibles bonds. Therefore, XYZ Inc. does not have absolute control over DEF Inc. and B is the correct answer.

XYZ Inc Owns 55% of DEF Inc