The Canadian Stockbroker© | TCS newswire™ ; Where is the security
M. Shane David
Where is the security to
invest in a start-up company the investor
requires?
If
you're thinking that some companies in start up phases might make
bad investments because their security is low or non existent,
think again.
Start-up companies who seek
capital investment funds (usually extremely aggressively) to pay
bills or to have their dream get some wings are asked for security.
While looking for investors, the company continues its operations
and moves towards its goals while it finds finances. With any luck,
it will get its act together find visionary investors and become
stronger than before continuing to grow. If the company cannot
generate enough start-up capital and begins to have problems paying
off its creditors or getting to its target market and cash flow it
will close or be forced to change.
In secured financing the debtor company in good standing manages
its business and is in possession of its own assets. In unsecured
financing the debtor company is partially controlled by the
creditors, and completely controlled soon after the conditions of
the credit are breached. In either case when the company fails to
perform or meet its obligations to lenders the results are the same
or at least the process does not differ.
The failing debtor company must then file a plan of reorganization
with the creditor’s council. If any of the creditors are to receive
less than full value for their claims, they will have the right to
vote on their acceptance. After the vote, the court can then elect
either to accept or reject the plan. So the company has some
flexibility, but if it tries to deal too harshly with various
creditors, its plan isn't likely to be approved.
In most cases of failure to meet its obligations, the company will
have to sell off assets to raise money to pay creditors. The
proceeds usually won't be enough to pay all prioritized creditors
in full. So the creditors can take a reduced amount of money,
and/or some stock in the reorganized company. Creditors don't have
to share anything with existing shareholders. Even the insiders'
stock stakes are generally always reduced to zero value.
If you notice much attention being paid to creditors and little to
shareholders, you're not imagining things. Those who hold shares of
common stock in the company are not near the front of the line.
They're behind debt holders, merchant creditors, trustees,
employees, the Tax Man, and even preferred shareholders.
Some companies in money troubles, start-up money shortages and debt
do emerge from it and survive -- but many don't. And with those
that do, it's rare for insider shareholders to benefit unless they
are part of the fix. Insider shareholders are the least secured and
as they're last in line the creditors and preferred shareholders
are in control of the company.
© 1999 - 2005 The Canadian Stockbroker© | TCS newswire™
Where is the security to
invest in a start-up company the investor
requires?
If
you're thinking that some companies in start up phases might make
bad investments because their security is low or non existent,
think again.
Start-up companies who seek
capital investment funds (usually extremely aggressively) to pay
bills or to have their dream get some wings are asked for security.
While looking for investors, the company continues its operations
and moves towards its goals while it finds finances. With any luck,
it will get its act together find visionary investors and become
stronger than before continuing to grow. If the company cannot
generate enough start-up capital and begins to have problems paying
off its creditors or getting to its target market and cash flow it
will close or be forced to change.
In secured financing the debtor company in good standing manages
its business and is in possession of its own assets. In unsecured
financing the debtor company is partially controlled by the
creditors, and completely controlled soon after the conditions of
the credit are breached. In either case when the company fails to
perform or meet its obligations to lenders the results are the same
or at least the process does not differ.
The failing debtor company must then file a plan of reorganization
with the creditor’s council. If any of the creditors are to receive
less than full value for their claims, they will have the right to
vote on their acceptance. After the vote, the court can then elect
either to accept or reject the plan. So the company has some
flexibility, but if it tries to deal too harshly with various
creditors, its plan isn't likely to be approved.
In most cases of failure to meet its obligations, the company will
have to sell off assets to raise money to pay creditors. The
proceeds usually won't be enough to pay all prioritized creditors
in full. So the creditors can take a reduced amount of money,
and/or some stock in the reorganized company. Creditors don't have
to share anything with existing shareholders. Even the insiders'
stock stakes are generally always reduced to zero value.
If you notice much attention being paid to creditors and little to
shareholders, you're not imagining things. Those who hold shares of
common stock in the company are not near the front of the line.
They're behind debt holders, merchant creditors, trustees,
employees, the Tax Man, and even preferred shareholders.
Some companies in money troubles, start-up money shortages and debt
do emerge from it and survive -- but many don't. And with those
that do, it's rare for insider shareholders to benefit unless they
are part of the fix. Insider shareholders are the least secured and
as they're last in line the creditors and preferred shareholders
are in control of the company.
© 1999 - 2005 The Canadian Stockbroker© | TCS newswire™
posted by Unknown at 8:53 AM
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