Which of the Following is True About Corporations?
Options:
A) A stockholder is personally liable for the debts of the corporation.
B) The corporation’s life is stipulated in its charter.
C) Stockholders’ acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.
D) Stockholders wishing to sell their corporation shares must get the approval of other stockholders.
The Correct Answer Is:
B) The corporation’s life is stipulated in its charter.
Correct Answer Explanation: B) The corporation’s life is stipulated in its charter.
This answer is correct because a corporation’s existence is typically outlined in its charter or articles of incorporation. This document specifies the corporation’s formation, purpose, duration, structure, and other essential details.
In many jurisdictions, a corporation has a perpetual existence unless explicitly stated otherwise in its charter. This means that unless the charter specifies a limited duration or certain conditions for dissolution, the corporation continues to exist regardless of changes in ownership or leadership.
The stipulation of a corporation’s lifespan within its charter is crucial as it defines the duration of its existence and sets the groundwork for its operations. This aspect influences various corporate decisions, including long-term planning, investment strategies, and continuity.
Whether the charter specifies a perpetual existence or a limited duration, it serves as a foundational document guiding the corporation’s functioning, ensuring clarity on its continuation or potential dissolution.
The charter’s clarity regarding the corporation’s lifespan offers stability and predictability, allowing stakeholders to make informed decisions and plan for the entity’s future within the defined scope of its existence.
Now, let’s address the other options:
A) A stockholder is personally liable for the debts of the corporation.
This statement is usually false under the concept of limited liability, which is a fundamental characteristic of a corporation. In most cases, shareholders are not personally liable for the debts or obligations of the corporation beyond their investment in the company.
This is a significant advantage of the corporate structure, as it shields individual shareholders from being held personally responsible for the company’s debts.
C) Stockholders’ acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation.
In general, for a shareholder’s actions to bind the corporation, they typically need to be acting within a role that grants them authority, such as being a director, officer, or appointed agent.
While certain actions taken by shareholders might indirectly affect the corporation, their personal actions usually don’t automatically bind the corporation unless they are acting within an authorized capacity.
D) Stockholders wishing to sell their corporation shares must get the approval of other stockholders.
This statement isn’t universally true. In publicly traded corporations, shareholders can usually sell their shares freely without needing approval from other shareholders.
However, in certain cases or specific types of corporations, there might be agreements or clauses that impose restrictions on the transfer of shares, requiring approval from other shareholders or the corporation itself.
In summary, while the correct answer (B) states that the corporation’s lifespan is typically outlined in its charter, the other options either misrepresent general corporate principles (option A), provide a nuanced view of shareholder actions (option C), or present a conditional scenario that doesn’t universally apply (option D).
Understanding the charter’s role in specifying a corporation’s lifespan is pivotal for stakeholders, as it dictates the entity’s longevity and operational framework.
While other options touch on various aspects of corporate governance, none delineate the fundamental and foundational aspect of a corporation’s existence as clearly as the charter’s stipulation of its lifespan.
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I am Smirti Bam, an enthusiastic edu blogger with a passion for sharing insights into the dynamic world of business and management through this website.
I hold a MBA degree from Presidential Business School, Kathmandu, and a BBA degree with a specialization in Finance from Apex College,
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