Question

The residual interest in a corporation belongs to the?

1) management
2) creditors
3) common stockholders
4) preferred stockholders

Answer 1

The residual interest in a corporation belongs to the common stockholders, who are the last in line to claim the company's assets and earnings after all other obligations have been met. The correct option is 3.

Step-by-step explanation:

The question concerns the residual interest in a corporation, which refers to the remaining interest in a company after all obligations have been satisfied. In the hierarchical structure of a corporation's financial claims, creditors are paid first, followed by preferred stockholders who receive predetermined dividends or assets upon liquidation.

The common stockholders hold the residual interest; they are entitled to what remains after all other claims against the corporation have been fulfilled. Thus, they have a claim on the profits and assets of the company that is subordinate to the rights of creditors and preferred shareholders.

The correct option for the entity that holds the residual interest in a corporation is common stockholders. This positioning presents both potential for higher returns and higher risk compared to creditors and preferred stockholders. The common stockholders can participate in the company's growth and success through dividends and appreciation of the stock value, but they also face the risk of losing their investment if the company does not perform well.