What’s the Difference Between Corporate Liquidation and Dissolution?

Companies that are no longer profitable quite often have no alternative but to cease operation. However, this process can be far more complicated than simply closing the doors. Understanding the difference between liquidation and dissolution can be the first step in navigating a neat and orderly business closure.

Liquidation

Liquidation is the complete and total sale of your business’s assets. This may be the most viable option if you have no other choices when faced with an imminent business closure, such as a company merger or obtaining emergency capital. When conducting a liquidation, it is important to examine each asset and allocate a value to it. Keep in mind that you can expect to receive a considerably lower amount than the retail value of your assets. Liquidation sales occur in various formats, including buyouts, consignment sales and public or private auctions. Research the various sale formats and determine which one is best for your circumstances. It is also wise to consult an attorney—and even an accountant—to determine which sale format is best for your situation.

Dissolution

Dissolution is defined as the closure of a business that is often initiated on voluntary terms by the business owner. This option necessitates the payment of all local, state and federal taxes and the ensuing closure of each of these different tax accounts. The articles of incorporation that were drafted when your company was formed should also lay out a detailed account of the process in the event of a corporate dissolution. It is critical to close all of the tax accounts, as the business will then be liable for tax filings, even if the operations have ceased. Contact your lawyer for a checklist of all documents that must be completed and filed for legal dissolution.

Liquidation and Bankruptcy

Bankruptcy may very well be your company’s only alternative in times of true economic hardship. Bankruptcy cannot be filed by a sole proprietorship or partnership, and it occurs when a bankruptcy trustee takes control of your company’s finances. The trustee will often liquidate all of the assets of your former company and distribute them to your creditors. The proceeds of the liquidation are then used to pay off the debts of your company, which are categorized into priority, unsecured and secured debts. Priority debt refers to the expenses of the bankruptcy proceedings. Secured debts are secured by some form of collateral, such as land, buildings or vehicles. Unsecured debts, which are usually paid last, include unpaid invoices, credit cards and other debts that are not backed up by any collateral.

Are you looking for sound legal advice for your organization, business or corporation? Contact KGPC LLP today.

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