The limited liability rule means that if a corporation goes bankrupt:

Question

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The limited liability rule means that shareholders are not personally responsible for the debts of the corporation if it goes bankrupt. They can only lose the amount they have invested in the company. This limits their financial liability and encourages investment. Therefore, shareholders can only lose the amount they invested. Bondholders, on the other hand, have a higher priority claim to the assets of the company during bankruptcy proceedings and will receive the face value of their bonds before shareholders receive anything.

The Limited Liability Rule Means That If a Corporation Goes