Which of the following statements is CORRECT?
A) A hostile takeover is the main method of transferring ownership interest in a corporation.
B) A corporation is a legal entity created by a state, and it has a life and existence that is separate from the lives and existence of its owners and managers.
C) Unlimited liability and limited life are two key advantages of the corporate form over other forms of business organization.
D) Limited liability is an advantage of the corporate form of organization to its owners (stockholders), but corporations have more trouble raising money in financial markets because of the complexity of this form of organization.
E) Although the stockholders of the corporation are insulated by limited legal liability, the legal status of the corporation does not protect the firm's managers in the same way, i.e., bondholders can sue its managers if the firm defaults on its debt.

Question

Quizplus · Accepted Answer

A corporation is a legal entity that has a separate legal existence from its owners and managers. It is created by the state and has legal rights and obligations. The other statements are incorrect. A hostile takeover is not the main method of transferring ownership interest in a corporation; it is a hostile act. Unlimited liability and limited life are not advantages of the corporate form; in fact, limited liability and perpetual life are two key advantages. The corporate form is not more complex than other forms of organization and it is actually easier for corporations to raise money in financial markets because of their ability to issue stocks and bonds. Additionally, while it is true that stockholders are insulated by limited legal liability, the legal status of the corporation does protect its managers from lawsuits by bondholders, as long as they have acted in good faith and within the scope of their authority.

Which of the Following Statements Is CORRECT