Final answer:
Corporations provide limited liability to their shareholders, who share in the profits but not in the debts of the company. The ability to sell stock to raise capital for business growth offers investors a chance to profit from dividends and stock appreciation. The correct option is 1.
Step-by-step explanation:
Corporations shield their stockholders from unlimited liability, meaning that if a corporation experiences financial distress or legal issues, shareholders only risk losing the amount of money they have invested in the company.
This limited liability encourages individuals to invest in corporations by allowing them to share in the corporation's profits without being personally responsible for its debts. Hence, the correct answer to the student's question is that corporations allow their stockholders to share in the profits (option 1).
Corporations are able to raise funds for expansion or other business purposes by selling stock, which represents partial ownership of the company, or issuing bonds.
This ability to raise capital is critical for a corporation’s growth and is attractive to investors who seek to profit from the company's success through dividends or stock value appreciation. The correct option is 1.