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CFA Level I · CFA Level I Exam · Organizational Forms, Corporate Issuer Features, and Ownership

A founder holds 60% of a listed company's voting shares and sits as chair and CEO. Compared with a widely held company, the conflict of interest most likely to be of greatest concern to minority shareholders is that the controlling shareholder may:

The main concern is that the controlling shareholder may extract private benefits through related-party transactions. When one owner controls the votes, the conflict is between controlling and minority shareholders, and the controller can steer value to himself at the minority's expense.

  1. Asell shares in the open market
  2. Bextract private benefits through related-party transactionsCorrect
  3. Cdiversify the company's product lines

Explanation

With a controlling owner, the main conflict shifts from manager-shareholder to controlling-minority shareholder. The controller can direct related-party dealings that benefit himself at minority expense. Selling shares in the market or diversifying are ordinary actions and are not inherently expropriation.

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