An investment in a business allows you to earn interest or dividends, and you may also earn a share of the profits. But there are risks involved, and the rewards may not be as high as you’d expect. In other words, you may lose more than you originally invested, or you may even lose money. Investing in a business will put you in a bind if the business doesn’t perform well, and you could be stuck with a bad debt.
The financial strength of the company is another consideration. A high investment-grade company must be profitable, and a mid-grade company must function as a going concern. If the company fails to meet these standards, it may need to restructure and sell assets to raise funds. A corporate restructuring is sometimes necessary to get back on track, and it can involve asset sales, spin-offs, or even liquidation.
In the long term, the interests of creditors and shareholders must be aligned. The interests of both parties are vital in achieving long-term growth. Enlightened shareholders can reconcile their perspectives and find areas of common ground. The right balance between protecting the interests of creditors and creating a fair return for shareholders can steer a company in the right direction.