Incorrect.<p>The law varies state-by-state but the actual process is closer to the following:<p>(1) Company agrees to file for bankruptcy, usually because they feel it&#x27;s in the owners&#x27; (shareholders) best interest to do so, in terms of recovering as much as possible from the &quot;bad&quot; company, vs. trying to keep the company running.<p>(2) Company&#x27;s management comes up with a plan to distribute company&#x27;s assets (cash, servers, IP, whatever) more or less &quot;fairly&quot; among the creditors. A big part of this is preventing management from giving a sweetheart deal on something worth a lot, to their friend&#x2F;relative&#x2F;whoever (e.g. selling the customer list for $1 to their friend&#x27;s company), vs. making sure everyone who has a claim on said assets can get the most back as possible. A lot of arguments happen here, this is the main point of the rdio situation, whether the sale to Pandora is the best possible outcome for everyone.<p>(3) The company&#x27;s assets get distributed as follows:<p>Employees -- most states give employees&#x27; unpaid wages preferential treatment in bankruptcy, under the same legal doctrine of why employees can&#x27;t be held civilly liable (sued) doing something under control of their employer -- employers have a general duty to care for&#x2F;protect their employees. (Note that neither the high priority bankruptcy payment, nor the liability protection, applies to contractors. Keep this in mind next time you think contractors are &quot;overpaid&quot; earning 2x as much as a W2, on top of the fact that they get no benefits and have to pay both sides of FICA)<p>Secured creditors -- any creditor whose claim is &quot;secured&quot; or &quot;backed up&quot; by some kind of asset, e.g. mortgage lenders.<p>Unsecured creditors -- 1099 contractors, lessors, all vendors, debenture (bond) holders, basically anyone who claims they&#x27;re &quot;owed&quot; by the company.<p>And finally, lastly, equity holders (stockholders). They don&#x27;t necessary have to get zero, but often do, because they&#x27;re so far down the list of who gets paid (what investment bankers call &quot;capital structure seniority&quot; -- they&#x27;re very junior).<p>So yes, it might be more or less ratable within each class, but there&#x27;s no guarantee that &quot;shareholders will get nothing&quot;, nor is it strictly proportional.<p>This is the garbage collection of capitalism and I find it fascinating.