Multiple Choice
In the context of a corporation, what do shareholders essentially own?
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12. Stockholders' Equity
Characteristics of a Corporation
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Which of the following statements best describes common stock in a corporation?
A
Common stock has no special preference in receiving dividends or in bankruptcy proceedings.
B
Common stockholders are paid dividends before preferred stockholders.
C
Common stockholders have priority over creditors in the event of liquidation.
D
Common stock guarantees a fixed dividend each year.
Verified step by step guidance1
Understand the concept of common stock: Common stock represents ownership in a corporation and typically comes with voting rights. It does not guarantee fixed dividends or special preferences in bankruptcy proceedings.
Analyze the dividend preference: Common stockholders receive dividends only after preferred stockholders have been paid. Dividends for common stock are not fixed and depend on the company's profitability and decision by the board of directors.
Examine the priority in liquidation: In the event of liquidation, common stockholders are paid after creditors and preferred stockholders. They are last in line to receive any remaining assets.
Compare with preferred stock: Preferred stockholders have priority over common stockholders in receiving dividends and assets during liquidation. Common stockholders do not have these preferences.
Select the correct statement: Based on the analysis, the correct description of common stock is that it has no special preference in receiving dividends or in bankruptcy proceedings.
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