Question

A corporation's legal capital:

a. is a requirement established by the SEC to aid in enforcement of regulations.
b. is the amount of cash received by the corporation from its shareholders when it originally issues stock.
c. allows a corporation to declare dividends of any amount.
d. is established to protect the corporation's creditors.

Answer 1

The correct answer is Option D.

Step-by-step explanation:

Corporation legal capital is the amount of equity that cannot legally be allowed to leave the company's books. The company cannot pay out dividends or any other thing from the legal capital. The legal capital is always regulated by the regulators e.g., central banks, Securities and Exchange Commission (SEC), insurance commission, etc.

The objective of having a legal capital is to protect the company's creditors in the event of default, however, this intent is being negated by companies as they issue low par values of stock.

Some states do not require any par value, meaning the companies in those states have no capital requirement.

Answer 2

Answer: d. Is established to protect the corporation's creditors.

Step-by-step explanation:

A corporation's legal capital is the part of a company's equity that absolutely cannot be allowed to leave the company. It is illegal to distribute them as dividends or any other means.

The purpose of this is to ensure that the creditor's rights to assets in the company are protected in the event that some mishap should befall the company.