Question

Corporate shareholders escape liability for the firm's debts, although this factor may be somewhat offset by the tax disadvantages of the corporate form of organization. What is the advantage of corporate shareholders in terms of liability?

1) Limited liability
2) Unlimited liability
3) Joint liability
4) No liability

Answer 1

Corporate shareholders benefit from limited liability, which means their financial risk is capped at their investment in the corporation's stock, allowing corporations to raise capital more easily.

Step-by-step explanation:

The advantage of corporate shareholders in terms of liability is limited liability. Shareholders are only liable up to the amount they have invested in the corporation, meaning they cannot lose more than what they have put into the company. This feature of corporate structure enables corporations to raise capital through the sale of stock or issuance of bonds, without exposing investors to personal financial risk beyond their investment in the corporation's stock.