Lucinda owns 1,100 shares of Blackbird Corporation stock at a time when Blackbird has 2,000 shares of stock outstanding. The remaining shareholders are unrelated to Lucinda. What is the minimum number of shares Blackbird must redeem from Lucinda so that the transaction will qualify as a disproportionate redemption?

Question

Quizplus · Accepted Answer

To qualify as a disproportionate redemption, Lucinda must own less than 50% of the voting power after the redemption. Initially, she owns 1,100 out of 2,000 shares, which is 55%. To own less than 50%, she must own less than 1,000 shares after redemption. Therefore, Blackbird must redeem at least 393 shares (1,100 - 707 = 393) to reduce her ownership to 707 shares, which is less than 50% of the remaining 1,607 shares (2,000 - 393).

Lucinda Owns 1,100 Shares of Blackbird Corporation Stock at a Time