Financial Industry Regulatory Authority (FINRA) Practice Exam

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Prepare for the Financial Industry Regulatory Authority Exam. Use flashcards and multiple choice questions with hints and explanations to ace your test!

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What rights do shareholders of common stock enjoy?

  1. Unlimited liability and voting rights

  2. Limited liability and voting rights

  3. Neither liability nor voting rights

  4. No liability and no voting rights

The correct answer is: Limited liability and voting rights

Shareholders of common stock enjoy limited liability and voting rights. Limited liability means that the personal assets of shareholders are protected; they can only lose the amount they have invested in the company, and they are not personally liable for the corporation's debts. This structure encourages investment, as it mitigates the financial risks associated with ownership. Voting rights allow common shareholders to participate in key decisions of the company, such as the election of the board of directors and major corporate actions like mergers or amendments to the corporate charter. This empowerment ensures that shareholders have a voice in how the company is run and can influence its management. The other options suggest that shareholders have either unlimited liability or no voting rights, which does not align with the nature of common stock ownership where protection from personal liability is a fundamental characteristic, and voting rights are a standard privilege granted to these shareholders.