Understanding Shareholder Liability in Bankruptcy

D

When a corporation goes bankrupt, the assets it owns are sold to pay off its creditors, including bondholders and other debt holders, as well as any other obligations it may have. Shareholders, on the other hand, are considered the owners of the company, and they have the right to receive any remaining assets after all other creditors have been paid off.

However, in the event of a bankruptcy, the value of the corporation's assets may not be sufficient to cover its debts, in which case shareholders may lose some or all of their investment. In this scenario, shareholders are not liable to pay any additional amount beyond their original investment in the corporation.

Therefore, the correct answer to this question is (C) An amount that could, at most, equal what you originally paid for the shares of common stock in the corporation. Shareholders are not liable for the corporation's debts beyond their original investment. They may lose the value of their investment, but they cannot be held liable for any additional amounts.

Option (A) is incorrect because bondholders have a higher priority for payment from the corporation's assets than shareholders, and shareholders are not responsible for any portion of the bondholder's claims.

Option (B) is also incorrect because it implies that shareholders are responsible for all creditor claims, which is not the case. Shareholders are only responsible for their original investment and cannot be held liable for any additional amounts.

Option (D) is incorrect because shareholders may lose the value of their investment, but they cannot be held liable for any additional amounts beyond their original investment.