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Simple English definitions for legal terms
stockholder's liability
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A quick definition of stockholder's liability:
Stockholder's liability refers to the legal responsibility that a shareholder has for the debts and obligations of a company. This means that if the company cannot pay its debts, the shareholder may be required to pay a portion of those debts. It is important for shareholders to understand their liability before investing in a company.A more thorough explanation:
Stockholder's liability refers to the legal responsibility that a shareholder has for the debts and obligations of a corporation. This liability can be limited or unlimited, depending on the type of stock owned and the laws of the state where the corporation is incorporated.
For example, if a shareholder owns common stock in a corporation and the corporation goes bankrupt, the shareholder may be liable for the corporation's debts up to the amount of their investment. However, if the shareholder owns preferred stock, their liability may be limited to the amount of their investment.
Another example of stockholder's liability is when a corporation is sued for damages caused by its products. In some cases, shareholders may be held liable for a portion of the damages if the corporation is unable to pay.
Overall, stockholder's liability is an important consideration for anyone who owns stock in a corporation, as it can have significant financial implications.