Question

Which of the following statements is CORRECT? a. One advantage of the corporate form of organization is that liability of the owners of the firm is limited to their investment in the firm. b. Bond covenants are an effective way to resolve conflicts between shareholders and managers. c. Corporations generally are subject to more favorable tax treatment and fewer regulations than partnerships and sole proprietorships, which is why corporations do most of the business in the United States. d. Because of their simplified organization, it is easier for sole proprietorships and partnerships to raise large amounts of outside capital than it is for corporations. e. Managers who face the threat of hostile takeovers are less likely to pursue policies that maximize shareholder value than are managers who do not face the threat of hostile takeovers

Answer 1

Answer:

a. Liability of the owners of the firm is limited to their investment in the firm.

Explanation:

A corporation is defined as a form of business owned by shareholders and controlled by elected group of board of directors. A corporation is a legal entity which means that it can sue and be sued. It can also enter into a contractual relationship.

In a corporation, the liability of the

shareholders or owners of the firm is limited to their investment in the firm because of the doctrine of separate legal entity. In case of liquidation, owners would only loose their investment in the firm rather than loosing their investment and personal properties.