Common stock: ownership, limited liability, order of liquidation and voting rights

Correct answer: An ownership interest in the issuer

Common stock represents ownership. Lending, scheduled principal repayment, and collateral claims describe debt features rather than common equity.

Correct answer: The investor may lose $4,000 but is not personally responsible for the corporate debts.

Limited liability separates corporate debts from the personal obligations of a holder of fully paid shares. The entire $4,000 investment remains at risk.

Correct answer: Common stockholders

The residual claim belongs to common stockholders: they receive what remains after creditors and preferred stockholders are satisfied.

Correct answer: No liquidation distribution

Common stockholders receive no distribution when assets are exhausted by senior preferred claims. Creditor payment alone does not make common eligible for the remaining assets.

Correct answer: Electing members of the board of directors

Common stockholders generally elect directors. The board declares dividends, while daily operations are management functions.

Correct answer: A proxy

A proxy authorizes another person to vote shares. It concerns who exercises the vote, not the distribution of votes among candidates or the distribution of corporate assets.

Correct answer: 200 votes

Under statutory voting, 200 shares times one vote per share equals 200 votes for each seat. The four seats do not allow 800 votes to be concentrated on one candidate.

Correct answer: 600 votes

The cumulative pool equals 150 shares multiplied by four seats, or 600 votes. The entire pool may be allocated to one candidate.

Correct answer: It lets the minority shareholder concentrate the available votes on fewer candidates.

Cumulative voting permits concentration of the shares-times-seats pool. That can improve minority representation without changing liquidation rights or removing majority voting rights.

Correct answer: As an equity security

17 C.F.R. § 240.3a11-1 includes stock in the definition of equity security. Common stock therefore falls within that classification.

Correct answer: Profit alone does not entitle the shareholder to a dividend payment.

Common dividends require a board declaration. Earnings alone do not create a payment obligation or a debt to common shareholders.

Correct answer: The first describes limited liability; the second confuses it with protection against investment loss.

Limited liability concerns responsibility for corporate debts, not preservation of a stock investment's value. Fully paid shareholders can lose their investment without becoming liable for those debts.

Correct answer: $30,000

Subtract the $60,000 preferred claim from the $90,000 remaining after creditors: $90,000 − $60,000 = $30,000 for common stockholders.

Correct answer: 80 votes

The total pool is 100 × 3 = 300 votes. Subtract the 220 allocated votes: 300 − 220 = 80 votes remain.

Correct answer: Cumulative voting, because votes may be concentrated

Eighty shares times three seats gives 240 cumulative votes that can be concentrated on one candidate. Statutory voting limits votes to 80 per seat; a proxy does not change that method.

Correct answer: Common stock has no contractual maturity date for repayment of principal.

Common stock is ownership without a contractual principal repayment date. Bond maturity, interest, and creditor status are debt concepts.

Correct answer: Straight voting

Statutory voting is also called straight voting. It limits the shareholder's votes for each seat rather than permitting concentration of a cumulative pool.

Correct answer: It does not change the common shares' junior liquidation position.

Voting control is a governance matter. Common stock remains junior to creditors and preferred stock in liquidation, even when the holder controls most common votes.

Correct answer: A proposed merger submitted to shareholders

A merger submitted to shareholders is a major corporate change on which they vote. Employee scheduling and routine operating decisions are management functions.

Correct answer: Shares owned multiplied by director seats being filled

Cumulative votes equal shares owned times director seats being filled. Market value is not part of the vote calculation.

Correct answer: 60 votes

Sixty shares times one vote per share equals 60 votes for each seat under statutory voting. A proxy transfers authority to exercise those votes, not additional voting power.

Correct answer: Limited liability limits personal responsibility for corporate debts; it does not create priority or protect invested capital.

The statement confuses personal liability with distribution priority. Common shareholders may lose all invested capital and remain junior to creditors despite limited liability.

Correct answer: 120 votes for one candidate and 80 for another

The pool is 50 × 4 = 200 votes. The proposed 120 + 80 allocation totals 200, so it uses the entire pool without exceeding it.

Correct answer: The board of directors

The board of directors declares dividends. Shareholders elect directors, but that voting role is not itself dividend declaration authority.

Correct answer: Neither preferred nor common stockholders receive liquidation distributions.

Creditor claims rank ahead of both preferred and common equity. With no proceeds remaining after creditor payments, neither shareholder class receives a distribution.

Correct answer: Creditors, preferred stockholders, common stockholders

Creditors precede shareholders, and preferred stockholders precede common stockholders. Common stock has the residual position.

Correct answer: Statutory voting limits the holder to 90 votes for each seat rather than permitting concentration across seats.

With one vote per share, 90 shares provide 90 statutory votes for each seat. Concentrating 90 × 3 = 270 votes on one candidate is a cumulative-voting feature.

Correct answer: $4,000; limited liability does not reimburse the decline.

The loss in value is $6,000 − $2,000 = $4,000. Limited liability concerns corporate debts and does not reimburse market losses.

Correct answer: Concentration can improve the shareholder's ability to obtain representation, but the result depends on the election votes.

Cumulative voting permits concentration and can help minority representation. It does not ensure a candidate wins or award seats based solely on using the full pool.

Correct answer: 300 additional votes

Cumulative voting permits 75 × 5 = 375 votes for one candidate. Subtract the statutory maximum of 75: 375 − 75 = 300 additional votes that can be concentrated.

Correct answer: A claim to assets remaining after senior claims have been satisfied

A residual claim is a claim to what remains after senior claims are paid. For common shareholders it may produce a distribution or nothing.

Correct answer: No; the pool remains 120 votes.

Forty shares times three seats equals 120 cumulative votes. Proxy authorization changes who exercises that authority, not the pool size or election method.

Correct answer: The shares create an ownership interest, and the bonds create a creditor claim.

One person can hold both equity and debt of an issuer. Common shares represent ownership; bonds represent a creditor relationship. The common issuer does not merge those legal positions.

Correct answer: Undeclared common dividends do not become a debt merely because the company earned profits.

Without a common dividend declaration, profits alone do not create an unpaid dividend debt. The shareholder cannot use retained earnings to transform common ownership into a bondholder-level claim.

Correct answer: $0

Pay the $50,000 preferred claim from the $50,000 remaining: $50,000 − $50,000 = $0. Satisfying the preferred claim exactly leaves no common residual.

Correct answer: No; that equal allocation is possible under either method.

Statutory voting allows 100 votes for each seat. Cumulative voting provides 100 × 3 = 300 votes, which can be divided 100 to each of three candidates. Concentration is permitted, not required.

Correct answer: No; the definition includes stock without imposing that voting requirement.

17 C.F.R. § 240.3a11-1 includes stock in the equity-security definition without imposing a voting-rights requirement. Lack of votes does not by itself remove stock from that definition.

Correct answer: 120 votes for a candidate in each of the four seats

Statutory voting permits 120 shares × one vote = 120 votes for each seat. Using 120 in each of four seats uses 120 × 4 = 480 votes across the election without concentrating them.

Correct answer: The proxy concerns voting authorization and does not change the common stock's liquidation priority.

A proxy authorizes another person to vote. It does not change the security's liquidation rank, convert stock to debt, or remove limited liability.

Correct answer: Both allow 200 because the cumulative multiplier is one seat.

Statutory voting allows 200 votes for the seat. Cumulative voting yields 200 shares × one seat = 200 votes. With one seat, there is no additional pool from other seats to concentrate.