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Chapter 18. Bankruptcy and Dissolution o... > Additional Issues Concerning Bankrup...

Additional Issues Concerning Bankruptcy of Startup Companies

The reorganization model of the U.S. Bankruptcy Code (Chapter 11) is not particularly suited to young knowledge-based startup companies. The material difference between startups and other companies is that the former lack many tangible assets which may be easily liquidated as part of the rehabilitation process. On the other hand, startups usually have intellectual property which may be sold if no restrictions are imposed on its transfer.

Investors in startups usually enjoy priority in dissolution over other shareholders, by virtue of their preference in liquidation rights (see the section on the rights attached to the securities allotted to investors). For example, investors may have a right of first refusal in the sale of the company's intellectual property.


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