Since There Is Normally Limited Liability for the Owners of Corporations

question 10

Multiple Choice

Since there is normally limited liability for the owners of corporations, special rules have evolved to protect corporate creditors. These rules are primarily concerned with

• A) borrowing by the officers of a new corporation.
• B) blocking management from impairing capital through business losses.
• C) preventing the negligent conduct of officers and/or employees.
• D) the sudden substantial impairment of the capital of a company.
• E) stopping creditors from making loans to corporate "shells".

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Definitions:

Deterrent

A factor or policy intended to discourage certain behaviors by instilling fear of the consequences.

Fractional Reserve

A banking system in which banks hold a fraction of the deposits as reserves, lending the rest to generate profit.

Reserves

Assets kept on hand by a bank or financial institution to meet emergency needs or regulatory requirements.

Transactions Demand

The demand for money for the purpose of carrying out transactions or day-to-day expenditures.