Investing in a business with acquaintances or people we trust is a common occurrence and often seems straightforward. Whether it’s for the purpose of “assistance” or to “seek profits” from the business, these situations happen frequently. In reality, companies can bring both profits and “losses.”
Now, if a “business Loss” emerges, as an investor who holds shares, would we get back the money we invested? Can we withdraw our investment before? Today, let’s discuss this matter.
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Legally, regardless of whether our business is small, such as a partnership or limited partnership, or ranges from medium-sized to large, like limited companies and public limited companies, there will be accounting or financial statements prepared to summarize profits and losses each year, similarly.
When the business generates profits, these profits are distributed according to the agreed-upon proportion of shares or the actual investment proportion, if applicable.
Almost all the cases I handle involve situations where businesses face “losses” or struggle.
The accounting profession is essential in dealing with business losses, supported by licensed accountants who ensure the accuracy and reliability of the summarized accounts.
Therefore, if you find that the overall performance of your organization is somewhat unclear, consult the financial statements submitted to government agencies, seek assistance from authorities, or explore online resources.
In this context, the term “losses” should be understood strictly as “accounting losses.”
It does not encompass losses in terms of equity or general calculation methods. Thus, when an organization, especially small to medium-sized ones, wants to discuss or assess profits and losses, it’s recommended to use an accounting approach that is comprehensible to us.
Can I get the invested money back from loss business?
Once we realize that our business is incurring “losses” or is undergoing improvements, the majority of shareholders often fear that their invested capital will be lost. In this regard, I would like to reassure you that there’s no hope. Your investment is more than 95% will be gone.
Legally, the capital we invest should be viewed as a “contribution” to our business organization. Therefore, if the business experiences losses after its operations, we cannot simply withdraw our investment and walk away.
This is because we have exchanged our money or capital for ownership based on the proportion of shares.
Does the business partner withdraw funds?
Having understood that even if the business is experiencing “losses,” shareholders are unable to retrieve their invested capital without any risk.
Nonetheless, shareholders can come to agreements to dissolve the business or even engage in “capital withdrawal” that involves assessing the business assets, evaluating them, or genuinely putting them up for sale. After this, the remaining funds are used to settle both internal and external debts.
Subsequently, the remaining amount can be distributed among shareholders as per the legal provisions or mutually agreed-upon terms.
If this remaining proportion is greater than or equal to the invested capital, it can be termed as a “capital withdrawal.” However, if it’s not sufficient, which is usually the case due to losses, then it’s considered that our investment has been unsuccessful.
Additionally, there’s another scenario:
Shareholders agree to dissolve the business even though it’s still generating profits.
In such a case, if you’re not involved in this aspect, you might not be aware of it, but it indeed happens. Generally, this could be a situation where one shareholder wishes to cease business operations due to personal financial needs, disagreements in business strategies, or other reasons.
This would lead to “capital withdrawal” before business cessation. In this case, the business continues to operate.
However, this shareholder would have to sell their portion to other shareholders or external parties. Typically, this results in a full return of capital or even profits, primarily because the business is still generating “profits”.
It can be concluded that if the business is in a phase of “losses” or is “nearing cessation,” the likelihood of capital retrieval is very minimal. This is different from cases where the business is in a phase of growth and profits. In that case, selling shares or withdrawing capital would be much simpler, often resulting in either the original investment value or additional profits.