Companies die every year.
Some die young. They try to go too far too fast on borrowed money they can't pay back, and they crash.
Some die in middle age because their products turn out to be defective, or too old-fashioned, and people stop buying. Maybe they're in:
- the wrong business, or
- the right business at the wrong time, or
- worst of all, the wrong business at the wrong time.
Big companies can die right along with smaller and younger companies.
American Cotton, Laclede Gas, American Spirits, Baldwin Locomotive, Victor Talking Machine, and WRight Aeronautical were once big enough and important enough to be included in the Dow Jones Industrial Average, but they're gone now, and who remembers them? The same goes for Studebaker, Nash, and Hudson Motors, Remington Typewriter, and Central Leather.
Takeover
There's one way a company can cease to exist without actually dying. It can be swallowed up by some other company in a
takeover.
Bankruptcy: Chapter 11 protection and Chapter 7
Chapter 11: And often, a company can avoid dying a quick death by seeking protection in a bankruptcy court. Bankruptcy court is the place where companies go when they can't pay their bills, and
they need time to work things out. So they
file for Chapter 11, a form of bankruptcy that allows them to stay in business and gradually pay off their debts. The court appoints a trustee to oversee this effort and make sure everyone involved is treated fairly.
Chapter 7: If it's a
terminal case and the company has no hope of restoring itself to profitability, it may
file for Chapter 7. That's when the doors are closed, the employees sent home, and the desks, lamps and word processors are carted off to be sold.
Often in these bankruptcies, the various groups that have a stake in the company (workers, vendors, suppliers, investors) fight each other over who gets what.
- These warring factions hire expensive lawyers to argue their cases.
- The lawyers are well-paid, but rarely do the creditors get back everything they're owed.
There are no funerals for bankrupt companies, but there can be
a lot of sorrow and grief, especially among workers, who lose their jobs and bondholders and stockholders, who lose money on their investments.
Companies are so important to the health and prosperity of the country that it is too bad there isn't a memorial someplace to the ones that have passed away. Or perhaps the state historic preservation deparments should put up plaques on the sites where these extinct companies once did business. There ought to be a book that tells the story of interesting companies that have disappeared from the economic landscape, and
describes how they lived, how they died, and how they fit into the evolution of capitalism.
