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Question
The board of directors of Laylow Corporation issued 1,000 shares representing 10 percent of the corporation to Don in exchange for an unsecured promissory note to pay Laylow $50,000 within the next 20 years. Don is the son of Charles, owner of 70 percent of the shares of the corporation. The total book value of the corporation at the time Laylow issued the shares was $5,000,000. Alan and Bob, owners of 20 percent of the total shares, discovered the transaction one month after it occurred. Alan and Bob sued Don on behalf of Laylow Corporation seeking to invalidate the transaction. Should the court invalidate it? Discuss.
Answer
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