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Gireendra Varma

Stealth • 6m

I have a doubt let's take a company got recently funded in exchange of let's take 10% and it's going well and doing business also, after 5years company started declining almost came to shutdown the company. Now my question is : 1)Does company founders need to pay money back to investors if company fails? 2) is their any legal issues need to face by founders ?

7 replies13 likes

Replies (7)

Anonymous 2

Stealth • 6m

Investors understand the risk; no repayment is needed. Legal troubles depend on whether there was any illegal activity or gross negligence.

0 replies

Anonymous 1
•

Amazon • 6m

No, founders generally don't need to pay back investors if the company fails. Founders may face legal issues if there was fraud or mismanagement.

1 replies1 like

Saksham

Stealth • 6m

1. It depends upon the SSA, SSHA, SHA, SAFE and alike agreements that are drafted. In a general sense, the agreements are drafted in favour of the investors and the exit clause of the agreement is made where it's the company’s responsibility to provide an exit to the investor within a prescribed time. 2. No, the founders do not face any legal action in such scenario. In the eyes of law, the company and the founders are different entities and founders cannot be held liable for such cases. There is a principle "Lifting of the Corporate Veil" which provides cases where founders can be held liable. The mentioned case does not fall in that.

2 replies1 like

SHIV DIXIT

Stealth • 6m

if company facing downfall then Invester try to take exit and thier is no legal issues if you're registering your company in plc ( private limited company ) . Make sure you never sign any agreement with invester that allows him to take that money from you . Do everything in the name of your company and never sign anything personally

1 replies3 likes

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