If you were one of the officers, would you feel comfortable engaging in this proposed treasury stock transaction? Briefly explain.
If I were one of the officers, I would not be comfortable with the proposed treasury stock transaction. I would be willing to accept the proposed treasury stock transaction as I risk losing a lower amount of money compared to waiting for a total loss that result from litigations. However, the unethical reasons leading motivating the treasury stock transaction will make me uncomfortable with the move. Evidently, my interest as a shareholder is to make profits and avoid as much loss as possible. Thus allowing for company repurchase will be a better option for me.
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First, repurchases by the company debits account will be available and the retained earnings would be zero. As a result, the stockholders’ equity will be decreased due to a reduction in the capital assets. Lower shareholders equity will reduce potential additional investors from buying shares from the company. Thus, the treasury stock transaction is a contra equity account that negatively affects the company’s equity. Our move would negatively affect the stability of the company and reduce share price further. The company will, therefore, operate at a loss and it will be unable to resale its stocks in future. Additionally, a loss in the litigation will not hold the shareholders to express company liable to any losses. Thus, if the company will not be able to pay back liabilities and compensate employees and customers, they shareholders will not be affected. Even though the move will work to my advantage, I will have participated in preventing full compensation of employees and customers that have allowed us to enjoy profits over the years.
What are your ethical responsibilities, if any, as they relate to the proposed treasury stock transaction?
Usually, the shareholders have a responsibility of selling all or substantially all assets in corporations. Also, we have a responsibility changing ownership of shares. Following the ethical issues that result from the treasury stock transaction, it will be prudent not to sell the stocks to the company. After all, the real value of the total stock is much lower than $8 million.
