[pan69]

Honest question, what happens to IOU's when the company fails? E.g. in the described scenario, one founder takes a salary and the other takes IOU's (+ 5% interest). The founder with the salary took less risk but still received 50% of the shares (even though they are worth zero when the company failed).

[tptacek]

They're zeroed out.

[YokoZar]

Perhaps more specifically, in a liquidation the IOU-holder is a creditor in line behind others (but ahead of common stock-holder)