Rose,Lily,and Fawn were shareholders in Style Co.,an incorporated company with limited liability.Each bought one-third of the shares in Style Co.for an aggregate payment of $15 000 each.The corporation borrowed $60 000 from the bank to finance its operations.The bank required personal guarantees from all shareholders for the full amount of the loan.Style Co.became insolvent,and the bank ultimately sued each of the shareholders to recover the $60 000.In receiving advice from their lawyer,what amount would he most likely indicate to be the maximum amount that could be recovered from any one of them?
A) $0
B) $15 000
C) $20 000
D) $60 000

Question

Quizplus · Accepted Answer

Given that the bank required personal guarantees from all shareholders for the full amount of the loan, each shareholder could be held personally liable for the entire amount of the debt ($60,000) if Style Co. defaults. This is because personal guarantees allow the lender to pursue the guarantors (in this case, the shareholders) for the full amount owed if the borrower cannot pay.

Rose,Lily,and Fawn Were Shareholders in Style Co