What does limited liability mean in the context of the relationship between the corporation and its creditors?
Limited liability is a type of legal structure for an organization where a corporate loss will not exceed the amount invested in a partnership or limited liability company (LLC). In other words, investors’ and owners’ private assets are not at risk if the company fails.
Is limited liability always an advantage for a corporation?
Limited liability is generally advantageous to large corporations. Large corporations would not be able to obtain financing from thousands or even millions of shareholders if those shareholders were not protected by the fact that the corporation is a distinct legal entity.
When a corporation fails the maximum that can be lost by an investor protected by limited liability is?
-agreement expires after ten 10 years. When a corporation fails, the maximum that can be lost by an investor protected by limited liability is: -the amount of the initial investment.
What is the legal life of a corporation?
The legal life of a corporation is perpetual. Corporations are a separate legal entity from the owners or shareholders, and as long as the corporation is in legal status, it is considered active.
Which of the following gives a corporation its permanence?
Separation of ownership and control. Separation of ownership and control gives the company an advantage of permanence.
Which one of these is a disadvantage of the corporate form of business?
The primary disadvantage of the corporate form is the double taxation to shareholders of distributed earnings and dividends. Some advantages include: limited liability, ease of transfer-ability, ability to raise capital, and unlimited life.
Who was responsible for the financial crisis of 2007 2009 quizlet?
Who was responsible for the financial crisis of 2007-2009? During the Financial Crisis of 2007-2009, the U.S. government bailed out all firms in danger of failing. You just studied 80 terms!
How many types of capital structure are there?
There are two types of capital structure according to the nature and type of the firm, viz, (a) Simple and (b) Complex. a. Simple: When the capital structure is composed of Equity Capital only or with Retained earnings, the same is known as Simple Capital Structure.
What is an example of capital structure?
For example, the capital structure of a company might be 40% long-term debt (bonds), 10% preferred stock, and 50% common stock. The capital structure of a business firm is essentially the right side of its balance sheet.
What is capital structure policy?
All companies have their own policies of capital structure. Capital structure is a mix or combination of debt and equity. The debt-equity ratio is maintained at various levels. The information content of dividend and capital structure policies are given in the diagram below.
What are the major determinants of capital structure?
The capital structure of a concern depends upon a large number of factors such as leverage or trading on equity, growth of the company, nature and size of business, the idea of retaining control, flexibility of capital structure, requirements of investors, cost of floatation of new securities, timing of issue.
How is equity ratio calculated?
The equity ratio is calculated by dividing total equity by total assets. Both of these numbers truly include all of the accounts in that category. In other words, all of the assets and equity reported on the balance sheet are included in the equity ratio calculation.