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How the Controversial Ride-Sharing Company Came to Dominate Its Market Worldwide

It’s been a wild ride for Uber Inc. (UBER). The company says the idea for its service was cooked up by two computer engineers who found themselves unable to find a taxi on the streets of Paris. It quickly became the world’s most valuable startup, “disrupted” personal transportation and food delivery, and became an emblem of the arrival of the gig economy. By early 2025, 16 years after its launch, it had a market capitalization of $166 billion.

Along the way, there were sexual harassment scandals, numerous lawsuits, public online protests, customer data hacks and cover-ups, an initial public offering (IPO) that flopped, the ignominious departure of one of its founders as CEO, hundreds of millions of dollars in legal penalties across multiple jurisdictions, and allegations of stealing trade secrets from Alphabet Inc. (GOOGL), one of its investors.

Key Takeaways

• Uber’s early investors included Goldman Sachs Group, Inc. (GS), Jeff Bezos, BlackRock, Inc. (BLK), and Google (later Alphabet).
• The idea for Uber was so disruptive it was illegal in many cities, but the company pushed ahead with a global expansion anyway.
• The company burned through tens of billions of dollars before it reported its first profit five years after its IPO.
• By 2025, Uber’s share price had almost doubled from its 2019 IPO closing price, and the company launched a $7 billion buyback program.

The Founding of Uber

According to the company, the idea for Uber was born in 2008, when computer engineers Travis Kalanick and Garrett Camp, attending a conference in Paris, were unable to hail a taxi. Originally, Camp wanted to focus on a high-end “black-car” service for professionals, but Kalanick didn’t like the idea of owning cars and garages. He only agreed to join Camp if the new venture focused solely on a ride-hailing app.

The two founded the company as UberCab in San Francisco in 2009 and began pitching it to investors as a faster, more luxe version of taxis that could be arranged via a mobile phone app. In July 2010, the company received its first ride request in San Francisco. The city’s transit authority quickly told the company to stop offering rides and threatened the company with fines and its people with prison time. In October of the same year, the company was renamed Uber and received $1.25 million in capital investment. Two months later, Kalanick became CEO, replacing Ryan Graves.

Note

From 2016 through early 2023, Uber piled up almost $30 billion in operating losses as it tried to capture market share. Its first annual profit as a public company, totaling $1.89 billion, came in 2023.

Uber’s Aggressive Expansion Up to Its IPO

Uber expanded rapidly in its first year, moving quickly to set up shop across the globe, which drove its valuation from $60 million in 2011 to $82 billion at its IPO just eight years later. There were plenty of scandals and controversies along the way—we’ve corralled them into a timeline below:

• 2011
• Uber launches in New York, taking on the city’s iconic yellow taxis, as well as in Paris, its first international market. It also closes two fundraising rounds: a Series A that raises $11 million, followed quickly by a Series B that raised $37 million, including from Goldman Sachs and Amazon founder Jeff Bezos.
• 2012
• People are now hailing Ubers across the U.S. and in several European cities. Uber introduced UberX, the lower-cost version of its service that became the company’s most popular offering.
• 2013
• Uber now operates in 40 countries, including China, India, and Russia, and it is valued at about $3.5 billion.
• Uber drivers file a class-action lawsuit to require the company to designate them as employees instead of independent contractors. This fight would drag on for years.
• 2014
• Uber announced that it operates in 250 locations worldwide. In December, the company raised $1.2 billion from investors, including BlackRock and Google Ventures, and is valued at about $40 billion.
• Uber faces large, disruptive strikes by taxi drivers in several European cities. In Paris, drivers burn tires and overturn cars.
• In November, an Uber executive was investigated for using its “God View” tool—designed to monitor customers—on a journalist. The company agreed to pay a $20,000 fine.
• Uber is banned in Delhi, India, after an Uber driver sexually violated a passenger, raising questions about Uber’s system of background checks for drivers.

Important

In 2016, journalists at BuzzFeed News determined that Uber drivers in three major U.S. cities earned less than $13.25 an hour after expenses. A 2025 study put Uber driver pay at about $23.33 ($0.90 per mile driven) for an average weekly gross of $513—figures that don’t account for expenses.

• 2015
• Uber is now in 300 cities. Its food-delivery service, UberEats, debuted in New York, Chicago, and Los Angeles.
• Authorities raid Uber offices in Amsterdam, saying the company is operating illegally. In France, anti-Uber protests turn violent, with taxi drivers attacking suspected Uber drivers.
• 2016
• Uber sold its China operations to Didi. It began an autonomous driving pilot program in Pittsburgh and San Francisco. The San Francisco pilot was quickly shut down because Uber had not sought, let alone received, city approval.
• An Uber driver was accused of killing six people in Michigan in his time off between picking up and dropping off passengers, bringing yet more attention to Uber’s background check system.
• 2017
• The #DeleteUber hashtag went viral after the company used surge pricing in an attempt to pad profits during a New York City taxi strike that was called to protest Donald Trump’s Muslim ban. Hundreds of thousands of users reportedly canceled their accounts.
• Uber agreed to pay $20 million to drivers across the country following a Federal Trade Commission complaint that it misled prospective drivers about their earning potential.
• In a blog post, former Uber engineer Susan Fowler alleged that her complaints of sexual harassment against her manager were largely ignored. Kalanick hires former U.S. Attorney General Eric Holder to investigate.
• After the law firm Perkins Cole investigated 215 staff complaints going back five years, 20 employees were fired.
• Holder recommends that Kalanick’s responsibilities be limited. Kalanick steps down as CEO. He is replaced by Dara Khosrowshahi.
• Google sued Uber, alleging that it stole trade secrets from its autonomous driving division.
• Uber posted a net loss of $4.5 billion.
• 2018:
• In May, Uber announced it had reached 10 billion total trips, more than double the total a year earlier.
• Uber settled Google’s trade theft claim for $245 million.
• Uber sold its Southeast Asia operations to Grab, a competitor.
• 2019:
• On May 10, Uber began trading on the New York Stock Exchange. Its share price closed 7.6% lower that day, the worst first-day loss in dollar terms in U.S. history. It posted a $5.2 billion loss for the quarter.
• In the following months, Kalanick sold more than $2.5 billion in shares, completely divesting from the company. By the end of the year, Uber shares were down by about a third from the initial listing price. Investors dubbed the situation a “horror show.”

Uber Turns the Corner

Uber achieved a remarkable turnaround in the years following its IPO. After burning through tens of billions of dollars to capture market share, the company under Khosrowshahi’s leadership sharpened its focus on core operations. While ride-hailing was hit hard by the pandemic, Uber Eats kept its customer base engaged, leaving Uber well-positioned to recover once the pandemic ended. It also cast off noncore businesses such as autonomous cars.

In addition, the company expanded advertising on the app and began offering grocery delivery and other travel services. Khosrowshahi also focused on attracting drivers by improving their experience, a shift for a company that has settled multiple driver lawsuits over the years.

In February 2024, a week after revealing its first annual profit ($1.89 billion), Uber announced a $7 billion share-buyback program.

By February 2025, Uber shares were trading near an all-time high and almost double the closing price on its first day of trading in 2019. In addition, Uber’s U.S. rideshare business market share had grown from 70% in January 2023 to 76% in December 2024.

Note

A 2025 study found that gratuities make up just 10.4% of earnings for rideshare drivers, while for those who deliver meals, such as drivers for UberEats, that goes up to a majority of earnings (53.4%).

The Bottom Line

Uber has always been controversial, partly because of its willingness to flout local laws forbidding it to operate. As one senior communications executive put it in an internal email in 2014: “…sometimes we have problems because, well, we’re just (expletive) illegal.” Uber is still banned in some countries.

But Kalanick and Camp’s vision of disrupting urban mobility has been at least partly realized, and under Khosrowshahi’s leadership, the company is on solid footing and finally turning a profit.

A Beginner’s Guide to Smart Investing with Index Funds

For investors seeking a proven approach to building long-term wealth, index funds have become the cornerstone strategy for both retail and major institutional investors.

“One of the most significant headwinds to profitable investing is management fees. By taking a passive, index-based investment approach, an investor can keep fees low while diversifying the portfolio across industries, sectors, and geographies,” said David Tenerelli, a certified financial planner at Values Added in Plano, Texas. “This results in the investor being able to benefit from broad economic growth regardless of the fortunes of individual companies.”

This guide explores what you need to know about index funds, from their fundamental principles to practical implementation strategies.

Key Takeaways

• Index funds replicate the performance of a specific index, offering a passive investment strategy.
• They are lower in cost due to lower management fees and taxes than actively managed funds.
• Index funds offer broad diversification across several sectors and asset classes, reducing overall investment risk.
• Potential drawbacks include a lack of flexibility and limited upside potential during some periods.

What Is an Index Fund?

An index fund is an investment vehicle, usually a mutual or exchange-traded fund (ETF), that tracks the performance of a specific market index, such as the S&P 500 Index or the Dow Jones Industrial Average. Unlike actively managed funds, where portfolio managers make specific investment decisions to buy or sell certain assets, index funds employ a passive investment strategy to simply mirror the holdings and performance of their target index.

When you invest in an S&P 500 index fund, therefore, you’re essentially buying small portions of all 500 companies included in that index. This means your investment is diversified across hundreds of companies with each share.

Index investing emerged in the 1970s when John Bogle, founder of Vanguard, introduced the first index mutual fund for individual investors. At its launch in 1976, the Vanguard 500 Index Fund was initially met with skepticism and dubbed “Bogle’s Folly.” However, the fundamental idea behind index investing–that most active managers fail to outperform the market after accounting for fees–has proven durable.

From humble beginnings of just around $10 million in assets, U.S. index funds have grown to command more than $16 trillion as of year-end 2024, representing a fundamental shift in how both institutional and individual investors approach the market.

Types of Index Funds

Index funds track different indexes or market segments:

Broad Market Index Funds

These funds track comprehensive market indexes like the total U.S. stock market or global stock market. They provide very wide diversification and are often recommended as core portfolio holdings.

Examples include the following:

• iShares Russell 3000 ETF (IWV)
• Vanguard Total World Stock ETF (VT)
• Fidelity ZERO Total Market Index Fund (FZROX)

Large-Cap Index Funds

These funds track major indexes like the S&P 500 and offer exposure to America’s biggest corporations.

Examples include the following:

• SPDR S&P 500 Index ETF (SPY)
• Vanguard Mega Cap ETF (MGC)
• Fidelity 500 Index Fund (FXAIX)

International Index Funds

These funds track non-U.S. markets, allowing investors to gain global exposure. They might track developed markets, emerging markets, or both, offering geographical diversification.

Examples include the following:

• iShares Core MSCI EAFE ETF (IEFA)
• Vanguard FTSE Emerging Markets ETF (VWO)
• Fidelity International Index Fund (FSPSX)

In addition to broad international funds, there are also many ETFs that track single-country foreign indexes.

Sector-Specific Funds

These specialized funds track specific industry sectors, such as technology, healthcare, or real estate.

Examples include the following:

• Technology Select Sector SPDR (XLK)
• Vanguard Health Care ETF (VHT)
• Vanguard Real Estate Index Admiral Fund (VGSLX)

Important

Sector funds are typically used to complement core holdings rather than as primary positions.

Fixed Income/Bond Index Funds

Rather than tracking an equity index, fixed-income index funds and ETFs track bond market indexes.

Most broad bond market indexes, like the Bloomberg U.S. Aggregate Bond Index, focus on investment-grade securities, including a mix of government bonds, corporate bonds, and mortgage-backed securities.

Examples include the following:

• iShares Core U.S. Aggregate Bond ETF (AGG)
• Vanguard Total Bond Market ETF (BND)
• Fidelity U.S. Bond Index Fund (FXNAX)

Important

Bond index funds often have slightly higher tracking error than equity funds due to the complexity of the bond market and difficulty in perfectly replicating bond indexes.

The Advantages and Disadvantages of Index Funds

Pros

• Very low fees

• Lower tax exposure

• Passive management tends to outperform over time

• Broad diversification

Cons

• No downside protection

• Cannot take advantage of opportunities

• Lack of flexibility

• Lack of professional portfolio management

Advantages

Cost

One of the most compelling advantages of index funds is their comparatively low cost. Since they don’t require teams of analysts and portfolio managers to select investments, they typically charge much lower fees than actively managed funds. While an actively managed fund might charge an expense ratio of 1% or more, many index funds charge less than 0.15%. This difference in fees can translate to significantly higher returns over long periods.

On a $100,000 investment over 30 years, assuming an 8% annual return, the difference between a 0.10% and 1.00% expense ratio amounts to over $220,000 in saved fees.

Tax Efficiency

Because index funds typically have low turnover (they only buy and sell securities when the index composition changes), they have fewer taxable events. This characteristic can result in lower capital gains distributions.

Broad Diversification

Index funds inherently provide broad diversification across many securities. Diversification helps protect against the risk of any single holding’s poor performance bringing down your portfolio.

Transparency

Investors always know exactly what they own since the fund simply tracks a published index. This clarity contrasts with actively managed funds, where holdings may change based on the manager’s decisions.

Disadvantages

Market Dependency

Index funds are designed to match market performance, not beat it. During market downturns, these funds will naturally decline along with their underlying index. And unlike actively managed funds, index fund managers can’t take defensive positions or hedge during periods of market turbulence.

Limited Flexibility

The passive nature of index funds means they must hold securities in proportion to their index weightings, regardless of the individual merits of specific companies. This inflexibility can sometimes result in overexposure to overvalued sectors or companies.

For example, in 2025, the so-called magnificent seven tech companies—Apple Inc. (AAPL), Amazon.com Inc. (AMZN), Alphabet Inc. (GOOGL), Meta Platforms, Inc. (META), Microsoft Corporation (MSFT), NVIDIA Corp. (NVDA), and Tesla, Inc. (TSLA)— make up almost a third of the index, meaning any downturn in that sector would be a problem for investors in S&P 500 index funds.

How To Invest in Index Funds

Step 1: Choose a Brokerage Account

The first step is opening a brokerage account if you don’t already have one. Major brokers all offer a wide selection of index funds, often with no commission fees for trades.

Step 2: Determine Your Investment Goals

Before selecting specific index funds, set out your investment objectives, time horizon, and risk tolerance.

Step 3: Select Your Index Funds

When choosing specific index funds that fit your goals, consider these key factors:

• Expense ratio: Look for funds with the lowest possible expense ratios while still tracking your desired index effectively.
• Tracking error: Compare how closely the fund has historically tracked its target index.
• Assets covered: Ensure your chosen funds provide exposure to your desired market segments.
• Trading volume: Higher trading volume typically means better liquidity and tighter bid-ask spreads—meaning you can trade them quickly at a lower cost.
• Assets under management (AUM): While not always a red flag, funds with small AUM may have a higher risk of closure or comparatively higher costs because they haven’t achieved efficiency of scale.

Step 4: Implement Your Strategy and Stick with It

The most important part of an indexing strategy is to continue to hold it for the long term, even through bear markets or unfavorable conditions. Consider implementing a dollar-cost averaging strategy by investing fixed amounts at regular intervals. This approach can help cut the impact of market volatility on your investment returns.

“It takes discipline to continue to buy investments during a market downturn,” Tenerelli said. “But a shift in mindset can help—rather than fearing financial loss, an investor can reframe as buying stocks ‘on sale.'”

The chart below shows the results of using dollar-cost averaging by putting $50 aside each month in an S&P 500 index fund for 20 years.

The Bottom Line

Index funds offer a compelling investment option for both novice and experienced investors. Their combination of low costs, broad diversification, and simplicity makes them an excellent foundation for long-term investment success.

While they may not offer the excitement of picking individual stocks or the potential for market-beating returns, index funds have proven a reliable path to building wealth over time.

Fact checked by Vikki Velasquez

One of the most pressing questions individuals face is: How much money will I need to maintain a comfortable lifestyle once I stop working? To answer that question, you have to understand the average monthly expenses of retired individuals and evaluate whether your savings will be enough.

Generally speaking, on average, you’ll need around $5,000 per month after retirement.

Key Takeaways

• The average retired household spends around $5,000 per month, with housing, healthcare, and food being the largest expense categories.
• With a median 401(k) balance of $210,724, retirees relying on the 4% withdrawal rule and Social Security benefits often face a shortfall in covering monthly costs.
• Retirees can bridge the gap by boosting savings, delaying retirement, cutting discretionary expenses, or exploring additional income sources like part-time work or rental properties.

Average Monthly Expenses for Retirees

The U.S. Bureau of Labor Statistics (BLS) provides valuable insights into spending patterns of retired households. According to data from the Consumer Expenditure Surveys (CES), the average retired household spends approximately $5,000 per month. Note that this information is based on data collected on 2023 spending and is the most recent available. This includes, in its total, but is not limited to:

• Housing. Costs include mortgages, property taxes, utilities, and maintenance. Retirees who have paid off their mortgages generally face lower monthly costs.
• Healthcare. Even with Medicare coverage, a retiree’s budget can be strained by out-of-pocket premiums, co-pays, prescription drugs, and long-term care.
• Food. Food spending tends to decline slightly in retirement compared to preretirement years. However, dining out and special dietary needs can influence individual costs.
• Transportation. While commuting expenses drop, retirees can still spend on vehicle maintenance, insurance, fuel, and recreational travel.

Will Your Savings Be Enough?

One benchmark to assess your retirement readiness is your total savings and investment portfolio. Data from Empower reveals the median 401(k) balance for individuals ages 60 to 69 is $210,724. Perhaps more important is data that shows the average balance for this age range was $573,624.

It’s important to consider how this balance decreases by age. For example, Empower also reported the median balance for those in their 70s was $106,654. This is a function of (1) individuals leaving a workforce and rolling over their retirement savings to other retirement accounts and (2) needing to draw down their retirement accounts. Consider the statistic above about needing $60,000 per year (all while perhaps not having income other than retirement benefits).

A commonly used retirement planning rule is the 4% withdrawal rule, which suggests withdrawing 4% of your savings annually to provide a steady income while preserving your principal.

Strategies to Bridge the Gap

If your current retirement projections indicate a shortfall, don’t panic. There are actionable steps you can take to ensure financial security:

1. Maximize 401(k) Contributions. For 2025, the Internal Revenue Service (IRS) allows individuals ages 50 and older to contribute up to $31,000 annually to their 401(k).
2. Contribute to IRAs. Beyond employer-sponsored plans, individuals can save $7,000 (or more in certain circumstances) in traditional or Roth individual retirement accounts (IRAs).
3. Increase Social Security Benefits. Each year you delay claiming Social Security past your full retirement age, your benefits increase by 8%, up to age 70.
4. Evaluate Retirement Spending. Consider what you will need to spend money on in your post-career period. Decreasing costs can be just as good as increasing income.

The Bottom Line

The average retired household in the United States spends approximately $5,000 per month, covering expenses like housing, healthcare, food, transportation, and discretionary spending. With the median 401(k) balance for individuals ages 60 to 69 at $210,724, applying the 4% withdrawal rule provides about $702 per month—which, when combined with the average monthly Social Security benefit of $1,976, still falls short of covering typical expenses.

If you find yourself in this boat, consider some techniques to increase your savings or decrease your expenses.

Reviewed by Akhilesh Ganti
Fact checked by Yarilet Perez

Today’s biggest, best-known companies are mostly mere teenagers in the history books of business—not least because their main activities have become possible only since the industrial revolution. Microsoft, for example, was not born until the relatively recent 1975. We know that corporate longevity is highly unusual. An estimated one-third of the companies featured in the 1970 Fortune 500 disappeared by 1983, either due to merger, acquisition, bankruptcy, or dissolution.

Of course, it is difficult to accurately calculate the exact age of companies. We cannot always say with absolute certainty whether the companies are really old, continuous businesses, or newer firms that were once trade associations, state organizations, or the result of mergers or acquisitions.

Complex date calculations aside, we will have a look at a handful of the companies that have withstood the test of time, both at home and abroad.

Key Takeaways

• Energy firm Con Edison began in New York City over 200 years ago and is still a thriving business today.
• Insurance marketplace Lloyd’s began in London 338 years ago and remains active.
• IBM was founded in New York 113 years ago and remains a technology powerhouse today.
• Tuttle Farm in New Hampshire was the oldest continually operating family farm in the U.S., for 381 years, before it was bought by another local farm in 2013.
• Like Tuttle Farm, Kongo Gumi has ceased trading, as of 2006, but for 14 centuries, it was the world’s oldest continuously operating family business, building Buddhist temples and later coffins.

1. Consolidated Edison

Con Edison—Con Ed to generations of New Yorkers—started way back in 1823, when its earliest corporate entity, the New York Gas Light Company, received a state charter to install natural gas lines in lower Manhattan, replacing the whale oil lamps that dated back to the 1760s.

In 1824 New York Gas Light was listed on the New York Stock Exchange (NYSE), and it holds the record for being the longest listed stock on the NYSE. In the early years of the 20th century, the firm expanded into electricity, and in 1936 was renamed the Consolidated Edison Company of New York. Today, Consolidated Edison provides gas and electricity to about 3.6 million customers in New York City and Westchester County.

2. Lloyd’s

Today, Lloyd’s is the world’s leading insurance market, housed over the pond in London, England. However, its beginnings lie in the more modest surroundings of a 17th-century coffee house. London was growing in importance as a global trade center, which in turn led to increasing demand for ship and cargo insurance, and in 1688 Edward Lloyd’s Coffee House became the place to purchase marine insurance. Lloyd’s has grown and expanded over the 338 years to become the world’s leading market for specialist insurance in a wide range of areas.

But in America, perhaps Lloyd’s most famous moment came as a result of the San Francisco earthquake of 1906. After the earthquake, Lloyd’s underwriter, Cuthbert Heath said: “Pay all of our policy holders in full irrespective of the terms of their policies.” This message has since passed into insurance legend because the San Francisco disaster cost Lloyd’s dearly—more than $50 million—a staggering sum in those days, the equivalent to more than $1 billion in today’s terms. Lloyd’s faced an enormous bill. But they honored it, and Lloyd’s good faith was soon rewarded.

3. IBM

A comparatively newer company—that is about to celebrate its 113th birthday—is IBM. International Business Machines—or its predecessor, the Computing-Tabulating-Recording Company—was founded on June 16, 1911, by the financier Charles Ranlett Flint. It was renamed International Business Machines in 1924.

IBM has had a colorful 113 years, acting as a pioneer in both the American “New Deal” on social security and in civil rights, yet also being accused of providing equipment to the Nazi regime during the Second World War.

For decades it was the biggest technology company in the world, but the firm suffered a near disaster in the 1980s when it failed to keep up with others’ innovations. However, a new CEO, Louis V Gerstner, turned the company around during the 1990s, coinciding with the rise of the internet. Gerstner retired in 2002, leaving the company once again one of the top computing firms in the world. As of April 2024, Arvind Krishna is the new CEO.

4. Tuttle Farm

Tuttle Farm in New Hampshire has been an inspiring case of a withstanding American family business. Although it is no longer family-owned, after selling to and becoming a part of nearby Tendercrop Farm in Massachusetts in 2013, prior to the sale, it was run by one family for 381 years.

Run in its last incarnation by the 11th generation of the family, the farm was for many years the oldest continually operating family farm in the United States. It all began in 1632 when John Tuttle arrived in the New World bearing a land grant from King Charles II.

The farm saw many changes over the more than 381 years of its existence, especially in the last 50 or so with the rise of the supermarket and the closing of many “mom and pop” businesses. Although able to thrive for many years, by 2010 the fruit-and-vegetable farm was put up for sale. In 2013, it was sold to the owner of Tendercrop Farm for a little over $1 million.

5. Kongo Gumi

Although they have now ceased trading, no piece about historical firms would be complete without at least mentioning the Japanese temple builder Kongo Gumi. This business had been trading for 14 centuries and was, until 2006, the world’s oldest continuously operating family business.

One of the secrets of Kongo Gumi’s 1,428-year run was its flexibility. For example, when the temple building business suffered during World War II, the company responded and switched to building coffins.

Kongo Gumi’s success also suggests that it’s a good idea to operate in a stable industry. Few industries could be less volatile than Buddhist temple construction—where the belief system has survived for thousands of years and has many millions of followers.

Unfortunately, even these factors could not protect this historic firm from the downturn in Japan’s economy. When the company’s borrowings had ballooned to $343 million in 2006, the firm was acquired by Takamatsu, a large Japanese construction company, and Kongo Gumi was absorbed into a subsidiary.

What Company Existed the Longest?

There’s many different directions and records that could point to one company over another. Very generally speaking, the oldest company in the world is usually recognized as Kongo Gumi, the Japanese construction company that was founded in 578 AD. It operated operated continuously for over 1,400 years until it was absorbed by another firm in 2006.

How Old is the New York Stock Exchange?

The NYSE was founded in 1792. Though the format of exchange has changed and many of the companies still do not exist, the exchange remains.

What Is the Outlook for the Oldest Companies?

A study by the International Institute for Management Development and McKinsey found the average life-span of companies listed on the S&P in 1958 was 61 years. Nearly 60 years later, the average life-span was 18 years. History may indicate that it may be more difficult for old companies to thrive, though this is obviously a case-by-case basis.

The Bottom Line

Some of the world’s oldest companies have endured for centuries, defying the odds against corporate longevity. Among them are Con Edison, founded in 1823, Lloyd’s, established in 1688, IBM, tracing its origins to 1911, Tuttle Farm, operated by one family for 381 years, and Kongo Gumi, which thrived for 1,428 years until its closure in 2006.

Fact checked by Ryan Eichler
Reviewed by Doretha Clemon

The right of eminent domain is used by a government entity when a home or other property is seized to make way for a public project like a new road, bridge, or school. The takings clause of the Fifth Amendment to the U.S. Constitution requires that the owner must be justly compensated for the loss. Courts have held that to mean that the property owner must be paid the fair market value of the property.

In a typical mortgage, the amount may be enough to pay for a new home, because the homeowner’s equity increases as they make mortgage payments. However, if the homeowner has taken out a reverse mortgage, then they may only receive sufficient compensation to pay back their loan.

Key Takeaways

• Eminent domain cases on reverse-mortgaged properties are rare, but they can happen and can cause complications for borrowers.
• Unlike in traditional forward mortgages, a homeowner’s equity decreases in reverse mortgages, potentially leaving little more than what is needed to repay the loan and not enough for a new home, even if the fair market value is received for the condemned property.
• Two critical factors are the amount of the home’s value that is borrowed against, and whether values are appreciating in a particular home market.

How Eminent Domain Works

Eminent domain is the power of a government, whether federal, state, or municipal, to take private property for public use, following the payment of just compensation. This practice occurs in many different countries under different names. It may not seem fair to the owners of the property, and eminent domain legal cases—especially when the owners feel that they have not been justly compensated—are fairly common.

Eminent Domain and the Reverse Mortgage

The compensation payment, when combined with the equity in the home, may be enough to pay for a new home or at least provide for a down payment on a new mortgage. However, if the homeowner has a reverse mortgage, then the homeowner may not have enough remaining equity in the home to pay off the loan and buy a new residence using the compensation payment. 

The chances may be more favorable if the homeowner has significant equity in the property. The home may have increased in value since the reverse mortgage was obtained, or the homeowner may have maintained significant equity in the home by borrowing only a limited amount.

The worst-case scenario occurs when the homeowner has taken a substantial amount of the property value in reverse mortgage payments and has not had enough time (or enough luck) to enjoy a substantial increase in the property’s value. In such cases, the government payment may fall well short of the cost of replacement.

Important

Homeowners may face added costs, such as for appraisals and relocation, which are not necessarily covered in all eminent domain cases. 

Home Value

The problem arises when the amount borrowed leaves the homeowner with little equity in the property and thus little actual cash from the settlement with the condemning authority.

In a case in 2012, an Oregon homeowner was offered just enough money to repay her reverse mortgage when the state’s Department of Transportation needed her home for a road project. The state agency eventually agreed to let the woman, then in her mid-80s, live in an agency-owned home rent-free for as long as she needed it.

In a time of rapid home appreciation, such situations are less likely. A home’s value is likely to exceed the amount borrowed years before, notes David Henson, managing partner of Henson Fuerst of Raleigh, N.C., a specialist in eminent domain and related property law.

However, downward swings do happen in housing markets. While the law varies among states, condemning authorities and the courts aren’t likely to consider the homeowner’s debt.

Property Value vs. Debt

“The relevant factor truly is what’s the value of the property before they take it and what are the damages that result,” Henson says. “The debt is immaterial as to how the damages are either negotiated or tried if it goes in front of a jury.”

Many homeowners in such a situation face added costs, such as appraisal fees and relocation expenses, which aren’t necessarily covered in eminent domain cases. 

As in traditional forward mortgages, the language of the relevant loan agreement is crucial. It should spell out what happens in case of a condemnation of the property. It should also state that the proceeds are to go to the homeowner, although the lender will have to approve the ultimate arrangement.

How Does Eminent Domain Work?

Eminent domain is the right of a local, state, or federal government to acquire property deemed needed for the public good. The Fifth Amendment to the U.S. Constitution requires that owners of such property be justly compensated. That generally is held to mean that the property owners will be paid fair market value.

How Does an Eminent Domain Proceeding Affect a Reverse Mortgage?

The impact is largely the same as on a traditional, or forward, mortgage: The government pays the property owner, who will then have to pay any outstanding balance on the home loan.

In the best-case scenario, an owner who has significant equity in the property can replace it, using the government’s payment.

In a reverse mortgage, the owner’s equity has been reduced by the amount borrowed plus interest and other repayment costs. In such cases, the equity and the government payout combined may not be enough to buy a replacement home.

How Can I Protect My Property From Eminent Domain?

Property owners don’t have many options to protect their property from eminent domain, as it typically isn’t possible to anticipate the future needs of the public or the government.

The Bottom Line

An eminent domain condemnation can severely complicate the financial and housing situations of homeowners using a reverse mortgage, particularly if a large proportion of the home’s equity has been withdrawn.

Reverse mortgages can come with hidden fees and obligations

Fact checked by Ryan Eichler
Reviewed by Lea D. Uradu

Reverse mortgages can be a good way for older adults to access the money tied up in their homes. A reverse mortgage is a loan for homeowners who are 62 or older and have considerable home equity. It allows these seniors to borrow money against the value of their home and receive funds as a lump sum, fixed monthly payment, or line of credit. The entire loan balance becomes due and payable when the borrower dies, moves away permanently, or sells the home.

If you think that sounds like an attractive proposition, you’re not alone. Reverse mortgages are also becoming more popular, with 32,991 issued in 2023 (the most recent statistics available). You should be aware, however, that reverse mortgages come with risks, obligations, and costs—and that sometimes these are hidden or hard to calculate before you finalize your reverse mortgage. In this article, we’ll take you through five of these issues.

What You Need to Know

• Sometimes the risks, obligations, and costs of a reverse mortgage are hidden or hard to calculate before you finalize your reverse mortgage.
• Lenders that use high-pressure sales tactics can be a red flag.
• There are lots of extra fees, which are often rolled into the loan, so they are not immediately apparent.
• You should add your spouse as a co-borrower where appropriate.
• A reverse mortgage does not mean your expenses end: You must keep paying property tax and homeowners insurance or else you could face foreclosure.
• Other ways of accessing your home equity might be more cost-effective in the long term.

Important

There are three types of reverse mortgages. The most common is the home equity conversion mortgage (HECM). The HECM represents almost all of the reverse mortgages that lenders offer on home values below $1,209,750 (the loan limit for 2025), so that’s the type that this article will discuss. However, if your home is worth more, you can look into a jumbo reverse mortgage, also called a proprietary reverse mortgage.

Some Lenders Use High-Pressure Sales Tactics

The first thing you should know is that reverse mortgages have a reputation for attracting predatory practices and lenders. Some seniors have been targeted with high-pressure sales tactics on reverse mortgages. You should be especially skeptical if a salesperson suggests how to spend the money from your reverse mortgage, particularly if they suggest putting the money into another financial product.

However, this doesn’t mean that a reverse mortgage is always a bad idea. For many people, a reverse mortgage can be a good way of providing themselves with a regular, dependable income in retirement. Just make sure you understand all of the complexities of the mortgage you take out.

Reverse Mortgage Fees Are High

The costs you will pay to take out a reverse mortgage can be very high compared with other forms of borrowing against your home equity. Borrowers must pay an origination fee, an upfront mortgage insurance premium, ongoing mortgage insurance premiums (MIPs), loan servicing fees, and interest. The federal government limits how much lenders can charge for these items, but the origination fee, in particular, can be high—it’s capped at $6,000.

These fees might not be immediately obvious to borrowers contemplating a reverse mortgage, since they are often paid from the money you borrow. This means that you won’t necessarily receive the money and then have to pay it to the lender, which can hide the fact that you are paying it. In practice, this process means that fees and interest are taken out of your home equity.

Important

Make sure you understand the residency rules of reverse mortgages and your other obligations. If you move away from your home for more than 12 consecutive months, even for medical reasons, you may be forced to sell your home. Similarly, your lender may foreclose on you if you fall behind with your homeowner’s insurance premiums.

You Should Add Co-Borrowers

It’s also important to pay attention to the residency rules when you take out a reverse mortgage. A reverse mortgage must be taken out against your principal residence, which is the place where you spend the majority of the year. If you leave this residence for six or 12 consecutive months, even for medical reasons, your lender may end your reverse mortgage and demand that you sell your home to pay off your debt. Lenders also might have rules about renting out all or a portion of your home.

This can be a particular problem for married couples who live together but only one of whom has their name on the reverse mortgage documents. In this case, the spouse may be forced to sell their home to pay back this debt while they are still living in it. To avoid this outcome, you should make sure that you add your spouse as a co-borrower, or at least make sure you can prove they qualify as an eligible non-borrowing spouse.

You Have Obligations

When you are working out whether a reverse mortgage can support you in retirement, you should factor in the cost of property tax and homeowner’s insurance. Most reverse mortgage lenders require borrowers to stay up to date on both of these. That’s because your house is their collateral for the loan, and it may not sell at the fair market price if it is damaged, which means the lender won’t get their money back.

In other words, after taking out a reverse mortgage, you will have obligations to your lender. And if you don’t fulfill them, your lender may foreclose on your loan. This is a real issue with reverse mortgages. According to a 2019 Brookings Institution paper on reverse mortgages, 18% of reverse mortgages ended in foreclosure. Sometimes it’s because the property taxes hadn’t been paid. but typically it was because the homeowners no longer lived in the home.

There Are Other Options

Understandably, a lot of reverse mortgage lenders won’t tell you that there are other—and potentially cheaper—ways of accessing the equity you’ve built up in your home.  

These alternatives include:

• A cash-out refinance: If you’re looking to access a large amount of home equity at once, a cash-out refinance can help with that. Doing this will mean you must make monthly payments to a lender. However, in the long term, you may preserve more of your equity compared to a reverse mortgage.
• A home equity loan or a HELOC: A home equity line of credit (HELOC) provides homeowners access to home equity. Unlike a reverse mortgage, home equity loans and HELOCs require borrowers to make payments. On the other hand, they may come with fewer fees and can be a less expensive alternative to a reverse mortgage.

The best option for you will depend on your reasons for seeking a reverse mortgage. Contacting a HUD counselor can be useful if you are still unsure what to do.

What Are the Downsides of Getting a Reverse Mortgage?

Mainly the costs. Reverse mortgages have expenses that include lender fees (origination fees are capped at $6,000 and depend on the amount of your loan), FHA insurance charges, and closing costs. These costs can be added to your loan balance; however, that means you will have more debt and less equity.

Do Reverse Mortgages Take Advantage of Seniors?

Sometimes, but not always. There have been reports that reverse mortgage lenders have targeted older adults with aggressive sales tactics. However, for some borrowers a reverse mortgage can be a great way to unlock the value of their home and provide a reliable source of income in retirement.

How Much Money Do You Get From a Reverse Mortgage?

The proceeds that you’ll receive from a reverse mortgage will depend on the lender and your payment plan. For a HECM, the amount that you can borrow will be based on the youngest borrower’s age, the loan’s interest rate, and the lesser of your home’s appraised value or the FHA’s maximum claim amount, which is $1,209,750 as of 2025.

The Bottom Line

A reverse mortgage can be a good way for older adults to access the equity they have built up in their homes. However, reverse mortgages may have hidden costs and obligations. It’s important to understand these before you agree to anything.

Fact checked by Skylar Clarine
Reviewed by Doretha Clemon

A reverse mortgage is a loan that can be taken out against the value of a home. Applicants for reverse mortgages must be at least 62 years old and have considerable home equity. Reverse mortgages allow homeowners to borrow against the value of their home and receive funds as a lump sum, fixed monthly payment, or line of credit. The loan balance becomes due and payable when the borrower dies, moves, or sells the home.

Key Takeaways

• Reverse mortgages require that applicants be at least 62 years old and own a significant amount of equity in their home. 
• Applicants typically need 50% equity to qualify for a reverse mortgage. 
• There are no credit score or income requirements for reverse mortgages.
• HUD requires all reverse mortgage borrowers to complete a counseling session.

Types of Reverse Mortgages

• A single-purpose reverse mortgage is offered by state, local, and nonprofit agencies and is the least expensive option. 
• Home equity conversion mortgages (HECMs) are federally insured by the U.S. Department of Housing and Urban Development (HUD) and may carry high initial costs. 
• Jumbo reverse mortgages are proprietary reverse mortgage loans that allow homeowners to borrow up to $4 million.  

Important

The most common type of reverse mortgage for U.S. homeowners is the HECM. In 2023, borrowers can access up to $1,089,300 with a Home Equity Conversion Mortgage.

Reverse Mortgage Requirements

Age

Reverse mortgages are designed to allow older homeowners without other sources of retirement savings to access the equity they’ve built up in their homes. Applicants and any co-borrowers, such as a spouse, must be at least 62 years old to qualify for a reverse mortgage.

Equity

Applicants must own a significant level of equity in their home, commonly 50%. The property must be a house, condominium, townhouse, or manufactured home built on or after June 15, 1976.

Under Federal Housing Authority (FHA) rules, cooperative housing owners cannot obtain reverse mortgages since they do not own the real estate in which they live but rather own shares of a corporation. New York, where co-ops are commonplace, once prohibited reverse mortgages in co-ops. As of 2022, the state allows them only in one- to four-family residences and condos as HECMs insured by the federal government or proprietary reverse mortgages.

Income and Credit

Reverse mortgages do not have income or credit score requirements and differ from a home equity loan or a home equity line of credit (HELOC). Both loans provide homeowners access to home equity, but home equity loan and HELOC applicants are reviewed for income and credit score and required to make monthly payments if approved.

Counseling

Reverse mortgage applicants for an HECM must complete a counseling session sponsored by the U.S. Department of Housing and Urban Development (HUD). This counseling session instructs borrowers on the pros and cons of taking out a reverse mortgage, how to access funds and the effects of the loan on Medicaid and Supplemental Security Income (SSI) eligibility.

Costs

Borrowers must pay an origination fee and an up-front mortgage insurance premium. These costs can be paid from the loan disbursement. The up-front costs of reverse mortgages are high, and borrowers must decide to pay out of pocket or from the equity of the property.

Consequences

Borrowers will continue to pay for property taxes and homeowners insurance with a reverse mortgage. If these payments are missed, or the borrower moves to a long-term care facility for medical reasons, the loan must be repaid, which is usually accomplished by selling the house.

Note

A reverse mortgage is one way of accessing the equity you’ve built up in your home during retirement. Other options include a cash-out refinance or a home equity loan.

What Disqualifies Applicants From Getting a Reverse Mortgage?

Borrowers must live in the home as their primary residence for the life of the reverse mortgage and be at least 62 years old. Vacation homes or rental properties are not eligible.

What Percentage of Equity Is Needed for a Reverse Mortgage?

To qualify for a reverse mortgage, borrowers must own their home outright or have significant equity, commonly 50%. The specific percentage varies by lender and the type of reverse mortgage.

What Is the Most Common Type of Reverse Mortgage?

The Home Equity Conversion Mortgage (HECM) represents almost all of the reverse mortgages that lenders offer.

The Bottom Line

Reverse mortgages allow homeowners to access the equity in their homes during their retirement years. Applicants must be at least 62 years old and own a significant amount of equity in their home. There are no credit score or income requirements for reverse mortgages.

Reviewed by Marguerita Cheng

Oil and gas operations are capital-intensive businesses, yet most oil and gas companies carry relatively small amounts of debt, at least as a percentage of total financing. This can be seen in their debt-to-equity (D/E) ratios.

When considering an oil company’s D/E ratio, there are a couple of things to keep in mind:

• An oil company’s degree of indebtedness tends to go up when oil is cheap and down when oil is expensive. The cash flowing in when oil prices rise makes it easy for a company to pay down debt acquired in less favorable times.
• The average or acceptable D/E ratios of oil companies vary depending on their roles in the industry. A company’s position along the supply chain is a factor in its D/E ratio.

Key Takeaways

• Oil and gas companies tend to take on more debt when prices are low, and pay it down when prices rise.
• An investor should compare a company’s D/E ratio to its peers in its sub-sector.
• Oil and gas companies are categorized as upstream, midstream, or downstream, but some big companies operate across categories.

The Debt-to-Equity Ratio

The D/E ratio reflects the degree to which a company is leveraged. In other words, it shows how much of the company’s financing comes from debt as opposed to equity.

Generally speaking, higher ratios are worse than lower ratios, though higher ratios are more tolerable in certain industries.

A company’s D/E ratio is calculated by dividing total liabilities by total owner’s equity. This information is available in the financial statements of public companies.

Note

8% of U.S. GDP is derived from the oil and gas industry. according to the American Petroleum Institute.

Trends in the Oil and Gas Industry

Many oil companies shrank their D/E ratios during the mid-2000s on the strength of ever-rising oil prices. Higher profit margins allowed these companies to pay off debt and rely less heavily on additional debt for future financing.

Starting around 2008-2009, oil prices dropped dramatically. There were three main reasons:

1. Fracking brought in new oil reserves in an economical way
2. Oil and gas shale production exploded, particularly in North America
3. A global recession placed downward pressure on commodity prices

Profit margins and cash flow fell for many oil and gas producers. Many turned to debt financing as a stop-gap; the idea was to keep production flowing through low-interest debt until prices rebounded.

As a result, this pushed up D/E ratios across the industry. Before the financial crisis of 2008, common D/E ratios among oil and gas companies fell in the 0.2 to 0.6 range. As of September 2022, the range clusters between 0.1 and 0.4 with crude oil prices trading at around $85 per barrel.

D/E By Industry Segment

In February 2025, with oil prices at about $71 per barrel, the D/E ratios in the industry ranged from about 0.46 to 0.97.

Average D/E ratios vary with the segment of the industry that the company inhabits. Current average D/E ratios in these segments are as follows:

• Oil and gas drilling: 0.46
• Oil and gas exploration and production: 0.50
• Oil and gas equipment and services: 0.52
• Oil and gas integrated: 0.61
• Oil and gas midstream: 0.97
• Oil and gas refining and marketing: 0.74

(An integrated oil and gas company has multiple divisions across industry sectors.)

Oil and gas companies might also use volumetric production payments (VPPs) to fund pre-exports and increase cash flows. VPPs allow the owner to maintain ownership while monetizing a field or proven orders.

What Are the Main Segments Within the Oil and Gas Industry?

The oil and gas industry is vast, and can be roughly broken down into three segments: upstream, midstream, and downstream.

• Upstream companies locate oil and gas sources and recover them.
• Midstream companies transport the raw product from wells to refineries.
• Downstream companies refine and distribute the product.

Integrated companies like ExxonMobil and BP are involved in all these segments.

What Are the Risks of Investing in Oil and Gas?

As every consumer knows, oil is subject to wild swings in price depending on geopolitics and the state of the economy. The price of a barrel of crude oil crashed from $201.46 in June 2008 to $62.14 the following January.

The industry sector thrives when prices are high but may struggle when prices drop.

Then there’s the potential, still unrealized, of a green revolution to alternative energy sources. Oil may be an industry in decline.

What Are the World’s Biggest Oil Companies?

None of the three biggest oil companies are based in the U.S. In terms of revenue, they are Saudi Aramco, China Petroleum & Chemical Corp., and PetroChina Corp. Ltd.

Number 4 on the list is ExxonMobil Corp.

The Bottom Line

A company’s degree of indebtedness is an important piece of information to its prospective investors. However, it must always be seen in relation to its industry, some of which need to rely on debt more than others. In the case of the oil and gas industry, look further to the average D/E ratio of company’s in its sub-sector.

Reviewed by Julius Mansa

What Are the Economics of the iPhone?

It’s estimated that 1.38 billion people around the world own an iPhone in 2025. About 155 million of them are in the U.S. That’s a market share of about 23% globally, and 59% in the U.S.

The iPhone lineup from Apple Inc. (AAPL) currently includes the iPhone 16, iPhone 16 Pro, iPhone 15, iPhone 14, and iPhone SE, at prices ranging from $599 to $999.

Apple’s greatest product may also be its greatest curse. The iPhone has been the company’s biggest money-maker, accounting for nearly two-thirds of its sales of products and services in its fiscal 2024 year. Much of the company’s efforts have been focused on creating ancillary services and products that complement the iPhone.

With all of the products and services intertwined, it’s challenging for investors to determine just how much money Apple earns from iPhone sales.

Key Takeaways

• iPhone sales made up about two-thirds of Apple’s total 2024 sales.
• Apple shipped 151.3 million iPhones in the first nine months of 2024, identical to the number delivered in the previous period.
• iPhone’s global market share is about 23%.

Understanding How the iPhone Makes Money

Investors and analysts cannot readily calculate how much profit Apple earns on each product as its reports include only revenue by product. The table below displays the company’s products and services revenues for the past three years. The data was pulled from the company’s 10K report filed in September 2024.

• Apple reported $301 billion in net sales of products and services for its fiscal year 2024. That’s down from $383 billion in 2023 and $394 billion in 2022. Note that Apple sales move in tandem with new product launches. The iPhone 16e and the iPad Air5 were released in 2022.
• The iPhone generated $201.1 billion in sales and services in 2024, meaning the iPhone represented about two-thirds of the company’s total sales for the year.
• That iPhone sales number is virtually flat from the previous year but down from about $205.5 billion in 2022.

Apple is one of the most valuable companies to date, yet most of its revenue depends on a single product line.

Services and Wearables

Apple has been actively expanding its services business in recent years, which includes its App Store, Apple Music, and Apple T.V. The company has also grown its wearables business such as the AirPods.

It’s important to consider that the company’s services and wearables business is an extension of its iPhone and other hardware products. Its businesses for services and wearables are an offshoot of its hardware business.

The company’s sales of wearables and accessories totaled $37.0 billion in 2024, down 7% from the previous years. Services revenue $96.1 billion, up 13% from 2023.

The ancillary businesses would not be possible without the company’s hardware products, including the iPhone. That makes it harder to pinpoint the overall profitability of the iPhone.

What Does it Cost to Build an iPhone?

Apple’s sourcing model is one of the reasons it generates attractive profit margins. The company makes very little of its products. Components and materials are purchased from sources around the globe and sometimes even from direct competitors such as Samsung.

This process significantly lowers capital expenses for Apple, saves the consumer a bit of money, and lets shareholders benefit from the difference.

The iPhone lineup in 2025 has retail prices ranging from $599 to $999.

It’s estimated that the components of an iPhone cost from $400 to $700 per unit depending on the model. That figure does not include the costs of marketing, distribution, or software development. It also does not take into account corporate and retail sales costs.  

How the iPhone Helps the Economy

Apple claims that the company has created more than two million jobs across all 50 states.

That includes 80,000 company employees, 450,000 jobs at suppliers, and 1.5 million jobs “attributable to the App Store ecosystem.” The growth has been exponential since introduction of the iPhone in 2007.

What New Products Is Apple Releasing in 2025?

There are facts and there are rumors. Let’s stick to the facts:

• The iPhone 16e is available for pre-order, priced from $599.
• An Apple smart home display, which looks like a 6-inch iPad to hang on your wall, is expected to be released in the second half of 2025.
• An iPhone 17 Pro is in the pipeline and may be released in the second half of 2025.

Is Apple the World’s Biggest Company?

Apple is the world’s biggest company by market capitalization. It has been since Aug. 2, 2018, when it became the first company to pass the $1 trillion in market value. As of Feb. 23, 2025, Apple’s market cap is $3.69 trillion.

Are There Risks to Investing in Apple Now?

As for any investment, there are potential risks and rewards to buying Apple stock.

Since early 2007 when the first iPhone was released, the stock has climbed from $3 or $4 a share to about $227 in late 2024.

Is the market for the iPhone limitless? Will Apple come up with a new product that rivals the iPhone in popularity? These are among the issues to consider.

The Bottom Line

Global demand for the iPhone lineup and its many related products have made Apple the world’s biggest company by market capitalization. Its dependance on the iPhone as a driver for sales worries some analysts. They don’t know how long Apple can sustain this level of demand for its leading product, or whether it can pull off another product introduction that has its seismic effect on the market.

One involves liquidating assets, while the other reorganizes them

Reviewed by Pamela Rodriguez

Chapter 7 vs. Chapter 11: An Overview

Companies that find themselves in a dire financial situation where bankruptcy is their best—or only—option have two main choices in the U.S.: Chapter 7 bankruptcy or Chapter 11 bankruptcy. Both are also available to individuals.

Under a Chapter 7 bankruptcy, the business closes its doors and its assets are sold off to pay its creditors. In a Chapter 11 bankruptcy, the company may continue to operate under court supervision.

Key Takeaways

• Chapter 7 and Chapter 11 are two common forms of bankruptcy.
• In a Chapter 7 bankruptcy, the assets of a business are liquidated to pay its creditors, with secured debts taking precedence over unsecured debts.
• In a Chapter 11 bankruptcy, the company continues to operate under the supervision of a court-appointed trustee, with the goal of emerging from bankruptcy as a viable business.

Chapter 7

Chapter 7 bankruptcy is sometimes called liquidation bankruptcy. Businesses going through this type of bankruptcy are past the stage of recovery and must sell off assets to pay their creditors. The process works much the same for individuals.

The bankruptcy court will appoint a trustee to ensure that creditors are paid off in the right order, following the rules of “absolute priority.”

Secured debt takes precedence over unsecured debt in bankruptcy, and the holders of secured debts are first in line to be paid off. Loans that are secured by a specific asset, such as a building or a piece of expensive machinery, are examples of secured debt.

Whatever assets and cash remain after all the secured creditors have been paid are pooled together and distributed to creditors with unsecured debt. Those would include bondholders and shareholders with preferred stock.

To qualify for Chapter 7 bankruptcy, the debtor can be a corporation, a small business, or an individual.

Individuals are also eligible for another form of bankruptcy, Chapter 13, in which the debtor agrees to repay at least a portion of their debts over a three- to five-year period under court supervision.

Chapter 11

Chapter 11 bankruptcy is also known as “reorganization” or “rehabilitation” bankruptcy. It is the most complex form of bankruptcy and generally the most expensive. For that reason, it’s most often used by businesses rather than individuals. The business may be corporations, partnerships, joint ventures, or limited liability companies (LLCs).

Unlike Chapter 7, Chapter 11 gives a company an opportunity to reorganize its debt and try to reemerge as a healthy business.

A Chapter 11 case starts with the filing of a petition in a bankruptcy court. The petition may be a voluntary one, filed by the debtor, or an involuntary one, filed by creditors who want their money.

During Chapter 11 bankruptcy, the business will keep operating while taking initiatives to stabilize its finances, such as cutting expenses, selling off assets, and attempting to renegotiate its debts with creditors—all under the court’s supervision.

The Small Business Reorganization Act of 2019, which went into effect on February 19, 2020, added a new subchapter V to Chapter 11 designed to make bankruptcy easier and faster for small businesses, which the U.S. Department of Justice defined as “entities with less than about $2.7 million in debts that also meet other criteria.” The act “imposes shorter deadlines for completing the bankruptcy process, allows for greater flexibility in negotiating restructuring plans with creditors, and provides for a private trustee who will work with the small business debtor and its creditors,” the Justice Department says.

Note

The Coronavirus Aid, Relief, and Economic Security (CARES) Act, signed into law on March 27, 2020, made temporary changes to bankruptcy laws designed to make the process more available to businesses and individuals economically disadvantaged by the COVID-19 pandemic. These changes ended, for the most part, in March 2021.

Chapter 7 vs. Chapter 11: Key Differences

Like Chapter 7, Chapter 11 requires the appointment of a trustee. However, rather than selling off all assets to pay back creditors, the trustee supervises the assets of the debtor and allows the business to continue.

It’s important to note that debt is not absolved in Chapter 11. The restructuring only changes the terms of the debt, and the company must continue to pay it back through future earnings.

If a company is successful in Chapter 11, then typically it will be expected to continue operating in an efficient manner with its newly structured debt. If it is not successful, it will file for Chapter 7 and liquidate.

Chapter 7

• Known as “liquidation” bankruptcy

• Assets are sold off by a trustee to pay debts

• When all assets are sold, the remaining debt generally is forgiven

• Used by both businesses and individuals

Chapter 11

• Known as “reorganization” bankruptcy

• Debts are restructured by a trustee, and the business continues

• Remaining debts must be paid back through future earnings

• Used primarily by businesses

How to Prevent Bankruptcy

Bankruptcy is generally a last resort for businesses and individuals alike. Chapter 7 will, in effect, put a business out of business, while Chapter 11 may make lenders wary of dealing with the company after it emerges from bankruptcy. A Chapter 7 bankruptcy will remain on an individual’s credit report for 10 years, and a Chapter 13 for seven.

Bankruptcy can be unavoidable. A business can go under during a severe recession. An individual can suffer a job loss or crushing medical expenses.

Still, many bankruptcies could have been avoided. One key, for both businesses and individuals, is to borrow judiciously. For a business, that could mean not expanding too rapidly. For an individual, it might mean not buying a larger home or a costlier car.

Before filing for bankruptcy, a business owner should consult with an outside attorney who specializes in bankruptcy law and discuss the alternatives.

Individuals are required by law to take an approved credit counseling course before they file. They may also have other resources available, such as a reputable debt relief company that can help them negotiate with their creditors. Investopedia publishes an annual list of the best debt relief companies.

Can You File for Bankruptcy Without an Attorney?

Individuals can file for bankruptcy under Chapter 7 or Chapter 13 without an attorney, according to the website of the U.S. federal courts system. This is called “filing pro se.”

However, the site strongly recommends seeking the help of a qualified attorney “because bankruptcy has long-term financial and legal outcomes” and misunderstandings or mistakes can have serious results.

Who Can File Chapter 11?

Chapter 11 bankruptcies can be filed by any individual, business, partnership, joint venture, or limited liability company, with no specific debt-level limits and no required income.

What’s the Difference Between Chapter 11 and Chapter 13?

Both Chapter 11 and Chapter 13 allow for the discharging of debts but have different costs, eligibility, and time to completion, making them two different types of bankruptcies.

• Chapter 11 can be done by almost any individual or business, with no specific debt-level limits and no required income.
• Chapter 13 is suitable for individuals with stable incomes, and this type of bankruptcy sets specific debt limits.

The Bottom Line

Chapter 7 and Chapter 11 are two common options for businesses to declare bankruptcy.

Chapter 7 is considered a liquidation bankruptcy: it doesn’t require a repayment plan but the business has to sell some assets to pay creditors.

Chapter 11 is considered a reorganization bankruptcy that allows businesses to maintain their operations while creating a plan to repay creditors.