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Presentation transcript:

Undercapitalization

Small business Problems faced by small businesses 1 Failure to provide this level of funding for the company could leave the owner liable for all of the company's debt should he end up in bankruptcy court, under the theory of undercapitalization.

China Banking Regulatory Commission 1 In response to their swelling debt loads, undercapitalization and non-transparent business practices, the government of China recapitalized the banks and set up the CBRC as the country’s independent banking regulator in

Piercing the corporate veil - Factors for courts to consider 1 *Significant undercapitalization of the business entity (capitalization requirements vary based on industry, location, and specific company circumstances);

Undercapitalization - Causes of under-capitalization 1 There are several different causes of undercapitalization,Levinson, David (1998). Increase Your Cash Flow. San Francisco: T.B.G. Publishers including:

Undercapitalization - Capital sources 1 Undercapitalization may result from failure of a business to take advantage of these capital sources,

Undercapitalization - Banking industry 1 In the banking industry, undercapitalization refers to having insufficient capital to cover foreseeable risks.

Undercapitalization - Macroeconomics 1 * In the electricity sector in Argentina, the government introduced controls on energy prices in 2002, reducing profitability and thus discouraging capital investment. This was compounded by high inflation, which caused declines in real revenue, while devaluation of the peso increased the cost of servicing high levels of debt in foreign currency. The result was severe undercapitalization, which led to inability to keep up with increasing demand, contributing to the 2004 Argentine energy crisis.

Undercapitalization - Macroeconomics 1 Although opposite in intent, both policies had the effect of creating overcapitalization in some sectors and undercapitalization in others.

Undercapitalization - Macroeconomics 1 A contrary view comes from the economist Robert Solow, who was awarded the Nobel prize for his work on the ways in which labor, capital and technical progress contribute to overall economic growth. Among other insights, Solow showed that undercapitalization appears to have less impact on economic growth than would be predicted by earlier economic theories.

Indoor American football - Indoor football leagues 1 The common factor all seemed to share was serious undercapitalization.

Fairview, Utah - History 1 Poor crops and undercapitalization nearly forced its demise in 1874 after only a few months of existence

Elias Hasket Derby - Life and career 1 Sebier and Ouery were undercapitalization|undercapitalized, and once they paid the many charges duties presents at Canton, they could not afford to continue the voyage to Boston

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