Read each question and choose the best answer.

Question

What happens to the stockholders when a corporation files for bankruptcy?
A. The stockholders must also file for bankruptcy.
B. The owners can force the board of directors to pay the debt.
C. The owners can lose only the money they have invested.
D. The owners can avoid paying the debt by forming a limited liability corporation.

Answer 1

The best answer is: C. The owners can lose only the money they have invested.

When a corporation files for bankruptcy, stockholders (owners of common or preferred stock) typically lose their investment, but their personal assets are not affected, as shareholders have limited liability.