Legal Definitions - Undercapitalization

Definition: Undercapitalization is when a company does not have enough money to run its business properly. This can lead to the company not being able to pay its bills or debts. It can happen because the company is not making enough money or cannot get loans or investments.

For example, if a small restaurant does not have enough money to buy food and pay its employees, it may have to close down. This is because it is undercapitalized and cannot afford to keep running.

Another example is a startup company that does not have enough money to develop its product or market it to customers. This can make it difficult for the company to grow and succeed.

Undercapitalization can be a problem for businesses because it can limit their ability to operate and grow. It can also make it harder for them to compete with other companies that have more money to invest in their business.