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What bankruptcy means for a business's investors

Owning stock is a way for a Cleveland resident to own part of a company. Through exchanges like NASDAQ and the New York Stock Exchange a person can purchase shares in a variety of companies across a diverse collection of industries. Companies that offer stock to investors are often called publicly traded entities, and when a business is publicly traded it becomes accountable to those individuals and organizations that have invested in it.

Bankruptcy can derail a stock holder's investment plan in a business entity. Particularly when a company files for Chapter 7 bankruptcy and plans to cease its operations, an investor may see the person's entire venture dry up as the company closes its doors. Even during a Chapter 11 bankruptcy a company may inflict serious financial harm on its stock holders; the remaining portion of this blog will explore what may happen to a stock holder's shares when a company he owns stock in files for Chapter 11 protections.

As an owner of a company a stock holder is often one of the last parties to receive financial gain from a bankrupt company. Secured creditors and bond holders may receive compensation for their investments in a struggling business; a stock holder, however, may see the person's investment eliminated or the person's stock converted into shares in the new, post-Chapter 11 reorganized entity.

Shares in a reorganized company tend to have values that are less than the values of the stock the investor had before the bankruptcy process began. Additionally investors may not see those shares available for trading on the previously mentioned exchanges -- reorganized companies often lose their places on popular exchanges due to their failures to comply with the exchanges' rules.

Bankruptcy can be difficult on investors in a company. However, many entities thrive after completing the Chapter 11 bankruptcy process. Business owners that wish to better understand how bankruptcy may serve their entities and investors can speak with business bankruptcy attorneys in their areas.

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