Corporate Shareholders Can Only Lose the Amount of Their Investment

question 21

Essay

Corporate shareholders can only lose the amount of their investment, in accordance with the concept of limited liability. State laws have established protection for a corporation's creditors with the concept of legal capital.
Required:
Explain how legal capital protects a corporation's creditors and discuss two different ways that legal capital can be established by a corporation.

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Definitions:

Consumption

The process by which goods and services are utilized to satisfy human wants, including the use of resources.

Income

The monetary payment received by an individual or household for their labor, investments, or from transfer payments, used to fund consumption and savings.

Interest Rate

The cost of borrowing money or the return on investment, typically expressed as an annual percentage of the principal.

Consumption

Families engaging in the use of products and services.