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Bove v. Community Hotel Corporation of Newport, R.I.
Supreme Court of Rhode Island
249 A.2d 89 (1969)
The holders of preferred stock in Community Hotel Corporation of Newport, R.I. (Community Hotel) (defendant) had the right to receive unpaid dividends for 24 years before dividends could be paid on any of the corporation’s common stock. Community Hotel’s management wanted to amend this right to enable it to sell common stock. Rhode Island law permitted corporations to amend dividend rights, but only upon a unanimous vote of the preferred stockholders. Community Hotel could not achieve unanimity. Instead, it created a nominal corporation and attempted to merge it with Community Hotel. Community Hotel proposed to structure the merger transaction in a way that would remove the preferred stockholders’ dividend rights. Under a different Rhode Island statute, mergers required approval of only two-thirds of a corporation’s preferred stock. Bove and other preferred stockholders (plaintiffs) brought suit to enjoin the merger, arguing that the merger’s only purpose was to circumvent the unanimity requirement.
Rule of Law
Holding and Reasoning (Joslin, J.)
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