Shareholders are said to have a residual claim on the firm's assets.What does this mean?

Question

Quizplus · Accepted Answer

A residual claim means that shareholders only receive payment after all other claims (such as those from creditors) have been satisfied. Therefore, the correct option is B. Option A is incorrect because limited liability means that shareholders are only responsible for their investment amount if the firm goes bankrupt. Option C is also incorrect because, as stated earlier, shareholders have a residual claim, meaning they can only recover investment after other claims have been paid. Option D is incorrect because shareholders do not have priority in electing the board of directors - all shareholders have an equal vote.

Shareholders Are Said to Have a Residual Claim on the Firm's