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Q

What happens to a convertible note if a company shuts down and goes out of business?

A

As holders of a debt instrument, holders of convertible notes come ahead of holders of equity in terms of repayment of any remaining assets they may have a claim to during liquidation. In concept, the holder of a convertible note will be paid ahead of all equity holders.

However, there may be more senior debt holders who come ahead in line of convertible note holders, such as providers of venture debt, lines of credit, credit card debt, and other debt.

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