Are shareholders personally responsible for corporate debt in a C corporation?

• A. Yes, always
• B. No, they are not
• C. Only if they own more than 50%
• D. Only in the case of fraud

Answer: (B)

Shareholders are not personally responsible for corporate debt in a C corporation due to the principle of limited liability, which is a fundamental characteristic of corporations. This means that shareholders' financial obligation is limited to the amount they have invested in the corporation. If a C corporation faces financial difficulties or incurs debt, creditors cannot pursue shareholders’ personal assets to satisfy corporate debts.

This protection encourages investment in corporations, as it mitigates the risk for shareholders. Even if shareholders own a substantial portion of the company, such as more than 50%, they are still shielded from personal liability for corporate debts. Personal liability may only become a concern in exceptional situations, such as when fraud is involved or if the corporate veil is pierced, but this is distinctly separate from general corporate governance.