The legitimate claims of a business's creditors take precedence over the claims of its stockholders.

Question

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This is a fundamental principle of corporate finance known as the "creditor priority" rule. It means that if a business goes bankrupt or is liquidated, the first claim to the assets will be made by the creditors who were owed money, before any payment is made to the stockholders. This gives some security to the creditors who have lent money or provided goods or services to the company, and ensures that they have a better chance of getting their money back.

The Legitimate Claims of a Business's Creditors Take Precedence Over