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> Both investors and creditors are exchanging money for a bet on future profit derived from the company being solvent Nope, that's still just investors. Credi
by mpweiher 4y ago
> Both investors and creditors are exchanging money for a bet on future profit derived from the company being solvent
Nope, that's still just investors.
Creditors are not people who made bets on the company's future profits. Creditors are people who the company made legally binding contracts with to pay them. For example people who provided products and services who are getting stiffed. Also: taxes due.
Even a bank loan is not a bet on the company's future profits. A bank loan is a contract that says you will repay the money lent, with interest. Irrespective of profitability.
Which is why a limited liability company usually can't get credit unless it is also guaranteed by someone else. Because with no outside guarantees, it would be a bet. (Yes, convertible bonds exist, but different topic).
- Kamq 4y agoI think you misinterpreted my statement here. The future profit I'm talking about is the profit of the creditor (or investor). That being said, I completely disagree with this part: > Creditors are not people who made bets on the company's future profits. Nope, that's not how reality works. If the company doesn't have the money (including their assets), you aren't getting paid. Extending credit is fundamentally a risk. That's one of the reasons credit card companies charge interest.