How Much Personal Property Must Each Shareholder Forfeit in a Lawsuit Settlement?
Question:
A private corporation owned by 35 shareholders is worth $1.7 million. The corporation loses the lawsuit worth $3 million. What is the value of any personal property each partner must forfeit to pay the settlement?
Options:
A. $132,857
B. $3 million
C. $1.7 million
D. $85,714
Final answer:
Answer:
In a private corporation, shareholders have limited liability, meaning they are not personally liable for the corporate debts. However, if we were to distribute the lawsuit loss equally among shareholders, each would bear a burden of approximately $85,714. The correct option is D.
Explanation:
In this scenario, a private corporation owned by 35 shareholders has suffered a loss due to a lawsuit. The corporation's overall loss is $3 million which exceeds its value of $1.7 million. The crucial aspect here is understanding how a corporation functions. In a corporation, the shareholders are not personally liable for the corporation's debts or liabilities. Therefore, while the corporation might become insolvent due to this lawsuit, the shareholders don't necessarily need to forfeit personal property to pay the settlement.
However, to calculate the theoretical per-shareholder loss from the lawsuit (if they were to pay), you would divide the overall loss by the number of shareholders which is $3 million divided by 35. This gives you an answer of approximately $85,714 per shareholder. It's important to clarify that this is a theoretical value and not a mandated requirement for the shareholders to pay from their personal assets, as they have limited liability. Answer is option D.