Which term best describes the theory that a corporation’s sustainability depends on its shareholders?

Which term best describes the theory that a corporation’s sustainability depends on its shareholders?

• A. Entity Theory
• B. Lifeblood Theory
• C. Benefit Received Principle
• D. Tax Benefit Rule

Answer: (B)

The Lifeblood Theory effectively addresses the relationship between a corporation and its shareholders, highlighting the idea that a corporation's sustainability is heavily reliant on the support, investment, and engagement of its shareholders. This theory posits that shareholders provide the necessary capital and resources that enable the corporation to function and thrive. By recognizing shareholders as the "lifeblood" of the corporation, this theory emphasizes the importance of aligning corporate strategies with shareholder interests. A corporation that neglects its shareholders may find it difficult to secure continued support, which could jeopardize its operational viability and long-term success. In contrast, other theories such as Entity Theory focus on the corporation as a separate legal entity with interests distinct from those of its shareholders, while the Benefit Received Principle and the Tax Benefit Rule are more related to tax considerations and do not specifically address corporate sustainability in relation to shareholders.

The Lifeblood Theory effectively addresses the relationship between a corporation and its shareholders, highlighting the idea that a corporation's sustainability is heavily reliant on the support, investment, and engagement of its shareholders. This theory posits that shareholders provide the necessary capital and resources that enable the corporation to function and thrive.

By recognizing shareholders as the "lifeblood" of the corporation, this theory emphasizes the importance of aligning corporate strategies with shareholder interests. A corporation that neglects its shareholders may find it difficult to secure continued support, which could jeopardize its operational viability and long-term success.

In contrast, other theories such as Entity Theory focus on the corporation as a separate legal entity with interests distinct from those of its shareholders, while the Benefit Received Principle and the Tax Benefit Rule are more related to tax considerations and do not specifically address corporate sustainability in relation to shareholders.