Premium Essay

Business: Undercapitalization and Bankruptcy

In: English and Literature

Submitted By twillite
Words 1041
Pages 5
Business: Undercapitalization and Bankruptcy
Robert Solomon
AIU Online
Business: Undercapitalization and Bankruptcy
There exists many ways to succeed and the world of business is certainly one of them but any time one opens oneself up to risk, the possibility of failure rears its ugly head. Genius it is argued though is when preparation meets opportunity. The first thing to do before setting out on the uncharted seas of financial security is to make sure you are aware of the dangers and pitfalls. The road is rough and has laid waist to many who have tried before you so be sure that you have what it takes, financially and intellectually. Fortunately there are solutions to this problem, albeit the people you will need to talk too are few and far between, it is good advice before you start that will give you that edge when the going gets rough and the pizazz to ride the crest of the wave when things go well.

Business: Undercapitalization and Bankruptcy
While there are many reasons to cling to the security of the hourly wage paycheck, the hopes and dreams of personal freedom is something that we, as humans, still crave. In this particular case, that freedom leads to the status of the self-employed businessperson. The problem is that just wanting success is never enough to accomplish it. Although freedom leads to self-sufficiency in an ever-changing, increasingly global market, the mere desire for success is a delusion in terms of real-world achievement. So the real question becomes, how can a small startup business avoid bankruptcy?
The Golden Idle
To begin with, the age-old cliché is true: “It takes money to make money.” This is fully understood by the business gurus of the modern world as under capitalization. It would seem so simple for a person with good intentions and a great product to just go down to their local bank and ask for a business loan.…...

Similar Documents

Premium Essay

Bankruptcy Fraud

...According to the IRS, ten percent of bankruptcy filings are fraud and less than one percent of those are convicted. Bankruptcy can be filed when a company or a land owner is unable to pay overwhelming debts. Sometimes people hide their money and assets, and file bankruptcy just so they won’t have to pay back the debts that they owe even though that person is fully capable of doing so, which is illegal. This is called bankruptcy fraud, which is federal white collar crime which can lead to a maximum of 5 years in jail, and a $250,000 fine. People that you would most commonly see commit this fraud are private citizens, small business owners, corporate CEOs, real estate agents, politicians, and loan officers. There are four very common types of bankruptcy fraud, which are the concealment of assets, filing multiple times, giving false statements, and bust outs. Bankruptcy can be a hard thing to do for someone. Almost anyone filing for bankruptcy is truthful, has good intentions and is hard working. Sometimes, no matter how hard you try, the job market, the loss of your job or the high interest rates can be too much for someone to meet. There are two types of bankruptcy that someone can have, which are straight bankruptcy, and reorganization. When dealing with straight bankruptcy, someone isn’t able to pay their debts, like car loans, credit card debts, or mortgage. This usually involves homeowners, which allows them to start with a clean slate. With reorganization, that person......

Words: 471 - Pages: 2

Free Essay

Bankruptcy

...everything to the best of our ability for God’s glory. As simple as it may be to say, we all know how difficult it is to live out in our daily lives. We are sinful humans, and the lives that we live occasionally bring troubling times. For Carl’s specific debt situation, I’d be sure to encourage him in the fact that the bible does speak frequently of debt and how to handle such debts, but it certainly does not forbid bankruptcy. To be honest, quite often bankruptcy is the only effective means to deliver a debtor from the slavery of overwhelming debt and to break the vicious cycle of borrowing. It was put into place for debtors to have a way out of the debt they’ve gotten themselves into. It does not mean that you’re free to borrow haphazardly – for scripture DOES forbid that. Psalm 37:21 says, “The wicked borrows but does not pay back, but the righteous is generous and gives.” Therefore, we as Christians are encouraged to “let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law” (Romans 13:8). Bankruptcy is all about forgiveness. Christians who have fallen into debt are obligated to repay that debt - for we comprehend the vastness of forgiveness. We should easily realize that borrowing and paying debts is a huge responsibility and one that should not be taken lightly, but we should praise the Lord that He forgives and gives us the opportunity for forgiveness of our sins, including Carl’s debt – for......

Words: 349 - Pages: 2

Premium Essay

Bankruptcy

...Article Critique #3 June 7, 2013 Walsh, M. (2013). A County in Alabama Strikes a Bankruptcy Deal. New York: The New York Times Company. This article reports how a county in Alabama is dealing with bankruptcy and how it will handle the situation. Due to a sewer debt shot up during the financial turmoil of 2008, and the repayment schedules accelerated sharply, it left Jefferson County unable to pay. The repairs went unfinished as well. According to the article, the county also had other debt outstanding when it declared bankruptcy, for a total of $4.2 billion, making it the biggest municipal bankruptcy in United States history. Residents of the county are worried that the bankruptcy will make their property values lower and higher taxes for county services. Governmental bankruptcies are rare and usually involve small single-purpose authorities and districts, not large, complicated counties with a lot of debt. Experts in public finance have been watching Jefferson County closely to see what kind of legal precedent it will set. Some were concerned that the successful application of Chapter 9 bankruptcy rules to municipal debt could cast a pall over the municipal bond market. The article states that the refinancing agreement covers debt held by creditors that include JPMorgan Chase, which holds about $1.22 billion of the sewer debt, the biggest block; three bond...

Words: 850 - Pages: 4

Free Essay

Individual Bankruptcy

...Chapter 11 bankruptcy allows a business to remain in operation while reorganizing its structure and debt. According to the Fried Law Firm, unlike a chapter 7 bankruptcy, which requires total liquidation and a cease in business activities, the company can continue normal operations. In addition, the company in all likelihood will be able to continue paying employee salaries, pensions, and health benefits. Chapter 7 bankruptcy is sometimes also called liquidation bankruptcy. Firms experiencing this form of bankruptcy are past the stage of reorganization and must sell off any un-exempt assets to pay creditors. In chapter 7, the creditors collect their debts according to how they loaned out the money to the firm .A trustee is appointed who ensures that any assets that are secured are sold and that the proceeds are paid to the specific creditors. Chapter 11 is much more involved than Chapter 7 bankruptcy as it enables the firm to reorganize its debt and to try to re-emerge as a healthy organization. An advantage of Chapter 11, if one is able to meet all of the statutory requirements, is that there is no set limit on a plan's duration. Chapter 11 plans often provide for debtors to make payments to creditors over a period of three to five years. The bankruptcy court can confirm a Chapter 11 plan with a longer term, however, if one requires more time to make required payments. A typical Chapter 7 bankruptcy case is opened and closed within three to six months, and the person filing...

Words: 388 - Pages: 2

Premium Essay

Blockbuster Bankruptcy

...INTRODUCTION In today’s economy so many businesses are failing and having to file for different types of bankruptcy. Some of the very common ones are Chapter 13, Chapter 7 and Chapter 11. Chapter 11 is more common for corporation and businesses. Chapter 11 reorganization is when the business is on the “verge of bankruptcy but believes it can be successful again” ("Chapter 11 Definition", n.d.,). The goal in filing Chapter 11 is to reorganize the assets and liabilities to become profitable again. Investopedia talks about how the value of the stock can drop as well as the bonds ("Chapter 11 Definition", n.d.,). Chapter 11 allows the business one more chance to be successful and be profitable by restricting the way business is done in the company. One of the companies that filed a Chapter 11 bankruptcy is the well-known Blockbuster chain. BACKGROUND The first Blockbuster store opened up in 1985 in Dallas, TX with 8,000 VHS tapes, a computerized check out process and a big dream. Mr. David Cook founded the well-known Blockbuster store (The History Channel, n.d.,).The store did so well that it opened three more in 1986. In 1987, the owner sold a portion to a group of investors, one of them being a well-known investor Wayne Huizenga (The History Channel, n.d.,). Mr. Huizenga was the founder of Waste Management, Inc. Eventually Mr. Huizenga assumed total control after Mr. Cook left the business. Blockbuster headquarters then moved from Dallas, Texas to Fort Lauderdale,......

Words: 1427 - Pages: 6

Premium Essay

Bankruptcy

...Bankruptcy Assignment Warren and Westbrook, The Law of Debtors and Creditors Sara Israelyan Spring Semester 2011 University of Minnesota Law School March, 2011 Warren and Westbrook, The Law of Debtors and Creditors Problems 8.1 Absent bankruptcy, what can Harv and Lois protect as the creditors begin to move in? What if they filed a Chapter 7? What could they protect if they lived in Cheyenne, Wyoming? When considering bankruptcy, pre-bankruptcy planning is one of the most important steps for Harv and Lois. In a Chapter 7 bankruptcy, the TIB will take all non-exempt valuable property that he can sell to distribute the money to the creditors. The main idea behind the Chapter 7 bankruptcy is ‘liquidation’. However, Harv and Lois can arrange their property and debt before filing for Chapter 7 bankruptcy, in order to maximize their exemptions. Generally, during a pre-bankruptcy planning, the debtor converts some of its non-exempt assets to exempts ones to save the property for creditors. In this case, usually the debtor sells or borrows against non-exempt property in order to buy exempt property. This right to maximize the exemptions however is not unlimited. After filing bankruptcy, all of Harv’s and Lois’s property, both real and personal, becomes a part of the bankruptcy estate. However, under the Bankruptcy Code, they are allowed to exclude certain property deemed necessary for everyday life and sustain a reasonable fresh start after discharge. Harv and......

Words: 1220 - Pages: 5

Free Essay

Bankruptcy Fraud

...Bankruptcy Fraud By Robyn Carter Forensic Accounting Data Analysis Bill Makkkawi October 13, 2009 Bankruptcy Fraud What is Bankruptcy? Bankruptcy is a way for individuals or businesses to satisfy debts. There are four types of bankruptcy. There is Chapter 7 which is a complete liquidation for individuals. Chapter 7 bankruptcy liquidates assets that are not exempt and uses the proceeds to pay creditors. In this bankruptcy creditors may be paid in full or a percentage based on the assets that were available. There is Chapter 11 which is for a business. Chapter 11 allows a business to reorganize its operation and finances so that it can pay its creditors. Sometimes in Chapter 11 another entity may take over the original entity in the reorganization. Creditors are told to give the entity time to reorganize and pay the debts. Then, there is Chapter 13 which is reorganization for individuals. Chapter 13 gives individuals a chance to pay creditors over 3 to 5 years through a Bankruptcy Trustee. Most assets can be kept depending on what percentage of the debts will be paid. If the debtor is paying the creditors in full then they would be able to keep all of their assets. This is only available for debtors with verifiable disposable income. The last type is Chapter 12 which is for farmers and fishermen (LII / Legal Information Institute). After completion of whichever chapter used, the creditor gets a “fresh start”. White......

Words: 2672 - Pages: 11

Premium Essay

Bankruptcy

...Bankruptcy laws help people who can no longer pay their creditors get a fresh start by liquidating assets to pay their debts or by creating a repayment plan. Bankruptcy laws also protect troubled businesses and provide for orderly distributions to business creditors through reorganization or liquidation. Most cases are filed under the three main chapters of the bankruptcy code. They are Chapter 7, Chapter 11, and Chapter 13. Federal courts have exclusive jurisdiction over bankruptcy cases. This means that a bankruptcy case cannot be filed in a state court. Below is a high-level summary on each bankruptcy code: Chapter 7 – Liquidation under the bankruptcy code: The chapter of the Bankruptcy Code providing for "liquidation," ( i.e., the sale of a debtor's nonexempt property and the distribution of the proceeds to creditors.) Chapter 11 - Reorganization under the bankruptcy code: The chapter of the Bankruptcy Code providing (generally) for reorganization, usually involving a corporation or partnership. (A chapter 11 debtor usually proposes a plan of reorganization to keep its business alive and pay creditors over time. People in business or individuals can also seek relief in chapter 11.) Chapter 13 – Individual debt adjustment: The chapter of the Bankruptcy Code providing for adjustment of debts of an individual with regular income. (Chapter 13 allows a debtor to keep property and pay debts over time, usually three to five years.) To some extent, Chapters...

Words: 853 - Pages: 4

Premium Essay

Business Law & Bankruptcy

...Business Law & Bankruptcy Assignment #1 New York State Department of State Division of Corporations, State Records and Uniform Commercial Code CERTIFICATE OF INCORPORATION OF Sandra’s, Inc. Under Section 402 of the Business Corporation Law FIRST: The name of the corporation is: Sandra’s, Inc. SECOND: This Corporation is formed to engage in any lawful act or activity for which a corporation may be organized under the Business Corporation Law, provided that it is not formed to engage in any act requiring the consent or approval of any state official, department, board, agency, or other body without such consent or approval first being obtained. THIRD: The county, within this state, in which the office of the corporation is to be located is: Tudorama, Inc. FOURTH: The total number of shares which the corporation shall have authority to issue, and a statement of the par value of each share or a statement that the shares are without par value are: 100, No Par Value. FIFTH: The secretary of state is designated as agent of the corporation upon whom process against the corporation may be shared. The address to which the Secretary of State shall mail a copy of any process accepted on behalf of the corporation is: 123 Main Street, New City, New Tutor 11111 SIXTH: The name and street address in this state of the registered agent upon whom process against the corporation may be served is: Sandra Seller, 123 Main Street, New City, New Tutor 11111 SEVENTH: The date the......

Words: 1020 - Pages: 5

Free Essay

Bankruptcy

...Business Law November 25, 2014 Bankruptcy The legal status of a person or entity that cannot repay the debts it owns to creditors is known as bankruptcy. In most of the cases it is imposed by a court order, often initiated by the debtor. If the person or entity is not able to pay debts, the best way to solve this problem is to set up an arrangement with the creditors. There are two options for the bankrupt person, declares a voluntary petition to become bankrupt or let the creditor take action to have this person declared bankrupt by an order of the court usually known as sequestration order. ("American Bankruptcy Institute.") The consequences of bankruptcy are really serious. The person or entity which is declared in bankruptcy will be registered in a permanent record named the National Personal Insolvency Indez (the NPII), which is an electronic register of al personal insolvency proceedings. This site is able for any person and includes personal information such as the name, date of birth and address of the person who is registered. In addition to, during the declaration of bankruptcy a trustee is appointed to look over the situation. The duties of this person are to specify in legislation and this person must have to attach to certain standards while he is on duty. The roughness part of bankruptcy is when the trustee is force to sell all the assets, including that person acquired or become owner during bankruptcy; nonetheless, this person would be able to keep......

Words: 467 - Pages: 2

Free Essay

Bankruptcy

...INTRODUCTION Bankruptcy is a legal status of an individual or someone who cannot pay back debts owed to creditors. Bankruptcy is mostly imposed by a court order, often initiated by the debtor. Bankruptcy is not the only legal status that an insolvent person or other entity may have, and the term bankruptcy is therefore not a synonym for insolvency. In some countries, including the United Kingdom, bankruptcy is limited to individuals, and other forms of insolvency proceedings (such as liquidation and administration) are applied to companies. A creditor can file a bankruptcy petition to the High Court against a person or persons who have failed to repay debts. Under Section 6 of the Bankruptcy Ordinance, the amount of debt in a creditor's petition must be equal to or exceed a certain amount and must be unsecured. Other than the Creditor's Bankruptcy Petition (legal action commenced by creditors), debtors can also institute bankruptcy petitions against themselves (i.e. Debtor's Bankruptcy Petition). PROCEDURES INVOLED IN WINDING UP A COMPANY BASED ON BANKRUPTCY. Firstly, a liquidator is appointed either by the company shareholders passing resolution or by the court making an order, then liquidator collects the assets of the company and pays creditors in order to priority. The liquidator also distributes any surplus fund to the share holders and hence the company is then formally dissolved. In Reinsurance Australia Corporation Ltd v Odyssey Re (Bermuda) Ltd (2001) 36 ACSR 348;...

Words: 1446 - Pages: 6

Premium Essay

Bankruptcy

...BANKRUPTCY This article is intended to provide some general bankruptcy information and is certainly not intended to replace the tailored information a debtor will receive from an attorney. Bankruptcy is governed by Federal Law (Title 11 of the US Code separated into individual Chapters, each dealing with a different type of bankruptcy) but the bankruptcy laws of each state also play an important part; consequently, though there are bankruptcy kits, you will probably need a lawyer to successfully file and a lawyer search should focus on a bankruptcy attorney or bankruptcy law firm licensed in the debtor’s state of residence. The attorney licensed in your state can tell you how to file for bankruptcy in a federal court within your state. American bankruptcy is actually a form of relief granted by a court, so it is not so much a matter of a debtor “declaring bankruptcy”; rather, someone files a petition requesting that the court discharge or reduce or restructure debts in bankruptcy. In American bankruptcy, a federal court manages a debtor’s property to protect the debtor from his/her creditors and to benefit the creditors as much as possible under the circumstances. While bankruptcy is designed for long-term relief, one of the most important features of filing for bankruptcy is the “automatic stay.” When a petition is filed for bankruptcy, either by the debtor (“voluntary bankruptcy”) or by one of his/her creditors (“involuntary bankruptcy”), most collection efforts......

Words: 960 - Pages: 4

Premium Essay

Bankruptcy Prediction the Case of Japanese

...Rev Account Stud (2009) 14:534–558 DOI 10.1007/s11142-008-9080-5 Bankruptcy prediction: the case of Japanese listed companies Ming Xu Æ Chu Zhang Published online: 26 July 2008 Ó Springer Science+Business Media, LLC 2008 Abstract This paper investigates if bankruptcy of Japanese listed companies can be predicted using data from 1992 to 2005. We find that the traditional measures, such as Altman’s (J Finance 23:589–609, 1968) Z-score, Ohlson’s (J Accounting Res 18:109–131, 1980) O-score and the option pricing theory-based distance-todefault, previously developed for the U.S. market, are also individually useful for the Japanese market. Moreover, the predictive power is substantially enhanced when these measures are combined. Based on the unique Japanese institutional features of main banks and business groups (known as Keiretsu), we construct a new measure that incorporates bank dependence and Keiretsu dependence. The new measure further improves the ability to predict bankruptcy of Japanese listed companies. Keywords Bankruptcy risk measure Á Accounting information Á Option pricing theory Á Japanese listed companies Á Bank dependence Á Keiretsu JEL Classifications G15 Á G33 1 Introduction When a company falls into bankruptcy, its stakeholders lose some or all the value they invested in the company. From an investor’s point of view, it is important to M. Xu (&) School of Accounting and Finance, The Hong Kong Polytechnic University, Kowloon, Hong Kong, China e-mail:...

Words: 13066 - Pages: 53

Free Essay

Aig Bankruptcy

...American International Group (AIG) bankruptcy The bankruptcy of the American International Group caused a large crash in the US economy after depression, since AIG are filing bankruptcy and are asking the help from the congress for the bailouts. AIG is considered one of the largest companies in the insurance market and it is almost bankrupt. It had already filed bankruptcy once before and still could not recover and need more money. One thing that can be obtained from the article is that there has to be some amount of transparency into the operations of the firms who are big like AIG, I think the major reason behind all this trouble was that the operations were not disclosed to the public and therefore the authorities got a chance to manipulate them. This way they covered up one time the problems in the form of first bailout, but because the problems were quite large and could not be solved, they went bankrupt again. I think this all would have not happened if the first bailout was disclosed to public and common stakeholders. I also somewhere think that the authorities misused their rights. I disagree with the way they handled the first bailout request. I feel that the authorities should have taken the legal actions and let the courts decide what to do. It is not acceptable for me ethically that some big issues are tried to be covered up. In addition to that, I also think that oligopoly may not be useful any more in the economy,......

Words: 313 - Pages: 2

Premium Essay

Bankruptcy

...Bankruptcy Examiner’s Report in Auditor Malpractice Suits A bankruptcy examiner’s report may provide a roadmap to auditors’ negligence, breach of contract, gross negligence, and / or cooperation to cover up fraud committed by the debtor management. A bankruptcy examiner is appointed by the court to investigate the debtor and the debtor’s estate for the purpose to determine if fraud, dishonesty, misconduct, incompetence, and irregularity by the debtor management has occurred before and during the filing of the bankruptcy. The judge call for an examiner based on a request from the trustee, the creditors, major shareholders, and / or his personal judgment. The parties who utilize the finding of the examiner’s report to sue the auditor for malpractice are the trustees, creditors, major shareholders of the debtor, and any other party that may find joining the lawsuit is in the best interest of the society. The examiner’s investigation- first- focuses on many aspects of the debtor’s assets, liabilities, equities, and how the operation is carried out in compliance with rules and regulations. The examiner gathers, verifies, tests, and interprets information from different sources (employees, customers, vendors, lenders, and other professionals who provide service to the entity under investigation). Second,......

Words: 1260 - Pages: 6