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How might business bankruptcy affect investors?

When you invest money in a business, it is probably because you hope you will receive a return. Many times, it is exciting to help a company grow, expand or develop a new product.

However, along with your investment comes risk – you have no guarantee that your investment will produce a profit for you. But do you know what will happen to your investment if the company files bankruptcy?

What kinds of business risk are there?

When you consider the potential risks a business might face, you may be interested in knowing there are four ways risks often occur. These include:

  • Operational risk – Daily operations are not always performed according to plan.
  • Reputational risk – Allegations can tarnish a company’s reputation and affect brand loyalty.
  • Compliance risk – Certain industries have stringent legal requirements.
  • Strategic risk – If a company does not follow its business model, it can lose effectiveness.

Additionally, other risks may be present, and anything that affects a company’s profits could lead to its demise.

Will you lose your investment if a company goes bankrupt?

There is no set answer for what kind of return you will get if you invest in a public company that ends up filing bankruptcy. While many might say you would get nothing back in such a situation, that is not necessarily the case since in a bankruptcy there is an order to those who will receive at least a portion of their money back. Depending on your situation, that may or may not include you.

Before investing in a company, you might be wise to consider whether you could recover if all is lost. By spreading your finances out across multiple investment opportunities, you may have a better chance of gaining a return on your investment.

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