Question

18) Fred purchased shares of stock In a fast-food corporatlon for $10,000. Marla ls a sole proprletor of a

fast-food restaurant that she purchased for $10,000. Which of the following statements best descrlbes
the maximum amount that Fred and Marla can lose on thelr Investments? (SSEMI3A DOK: 2)
A. Fred can only lose $10,000, but Marla can lose more
B. Marla can only lose $10,000, but Fred can lose more
c. Both Fred and Marla can lose only $10,000
D. Both Fred and Marla can lose more than $10,000

Answer 1

A. Fred can only lose $10,000, but Marla can lose more

Step-by-step explanation:

Fred can lose a maximum of $10,000 because he bought shares of a corporation. Shareholders of a corporation enjoy limited liability to its debts. Should the corporation face liquidation, the shareholder's liability is limited to the value of share contribution. It means that Fred can lose a maximum amount equal to the shares he purchased should the corporation collapse.

Marla bought a sole proprietorship business. The law considers a sole proprietorship business and the owner to be the same thing. Marla's business assets are her assets, while the debts of the business will be her debts. Should the restaurant incur debts more than the $10,000 that Marla paid for it, she stands to lose more if her business collapses. Her assets will be used to settle the debts of the restaurant.