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".

Question

Quizplus · Accepted Answer

The rules that have evolved to protect corporate creditors are primarily concerned with the sudden and substantial impairment of the capital of a company. This is because, in most cases, the owners of corporations have limited liability for the company's debts, and creditors therefore need protection in the event that the company experiences a financial crisis or insolvency. These rules may include requirements for minimum levels of capitalization, restrictions on distributions to owners, and obligations to maintain adequate reserves or disclose financial information to creditors.

Since There Is Normally Limited Liability for the Owners of Corporations