SHAREHOLDERS AND SHAREHOLDER RESOLUTIONS, CAPITAL AND SECURITIES Flashcards
What governs the distribution of assets when a company is liquidated
When a company is liquidated, the distribution of assets typically follows a specific order of priority, which is governed by the laws of jurisdiction where the company is located
What order do people get paid in a liquidation scenario
The general order of who gets paid in liquidity is:
- Secured creditors
- Unsecured creditors
- Equity holders
Who are secure creitors
Secure creditors are those who have a security interest in the company’s assets
Who are examples of security creditors
Examples of security creditors are, banks or other lenders who hold a mortgage or lien on specific property of the company
What are Secured Creditors usually paid from when a company is liquidated
Secured Creditors are typically paid first from the proceeds of the sale of the collateral
Who are Unsecured Creditors
Unsecured creditors include suppliers, service providers, contractors, and other creditors who do not have a security interest in the company’s assets
When are unsecured creditors paid
Unsecured creditors are paid after security creditors but before equity holders
Who are equity holders
Equity holders are the owners of the company:
- Shareholders
- Members in a limited liability company
When are equity holders paid
Equity holders are paid last, after all creditors have been paid
When may unsecured creditors not receive full payment
Unsecured creditors may not receive full payment for their claims if there are insufficient assets to cover all liabilities
