Final answer:
In the event of business failure, secured creditors get paid first followed by unsecured creditors and bondholders, while shareholders are the last to be compensated and might not receive anything if assets are depleted.
Step-by-step explanation:
If a business were to fail, the order in which creditors and investors get paid is determined by the legal and financial structure of the bankruptcy process.
Primarily, secured creditors, who have collateral backing their claims, are paid first. They are followed by unsecured creditors, including suppliers and bondholders. Shareholders, especially common shareholders, are paid last and may not receive anything if all the assets of the business are exhausted in paying off other debts.
In historical cases of bank runs, the situation was more chaotic, with depositors racing to withdraw their funds before the bank's cash reserves were depleted.
However, today we have systems like the FDIC in the United States which provide a level of insurance to depositors' funds. These systems are designed to protect individual depositors and preserve stability in the financial system.
Owners of small businesses, including angel investors and the business founders themselves, often provide the initial capital. In the event of failure, these parties stand to lose their investment, showcasing the risks associated with funding and operating a business venture.