Every business person is expected to have an exit plan so that when the right time comes he or she can have the business liquidated to allow for eventual closure. While there are many ways of exiting the arena of business, liquidation is one of them. Liquidation refers to the bringing of a business to a close after achieving its goals or based on other reasons such as bankruptcy. Whatever the reason you are liquidating your business, it is necessary to get the whole process right to avoid losses or last-minute errors that could have far-reaching financial implications on you, shareholders, creditors, or the government.
Types of Business Liquidation, several types of liquidation exist but two common types are voluntary liquidation of an insolvent venture and compulsory liquidation. Whether your organization is a loss-making organization or not, you might be required to use any of these routes of liquidation. Under voluntary liquidation, the shareholders and the directors of a business entity may elect to wind up the operations of a business. On the other hand, compulsory liquidation is where the company is forced to wind up its operations by the government, creditors with the help of a court order. Below is a detailed explanation of the two types of liquidation.
Creditors’ Voluntary Liquidation
This method is an initiative of shareholders in which they all agree to liquidate a company. Usually, it involves ending the operations of an insolvent company and sharing out the assets to its creditors. Where the shareholders are personally liable, the sale of assets may extend to their property if the assets of the company are not sufficient to settle the creditors. Perhaps this is the most stress-free way of offloading the burden of a huge debt that a company may not be able to pay.
Voluntary Liquidation of a Solvent Company
This is the method of ending a business in which the owner wishes to take tax advantages or reduce tax liability. If you believe your company has outlived the purpose for which it was established, then this is the most appropriate way of recouping your money in a manner that is tax efficient. In this approach, the directors of a company are required to sign a declaration that there are no remaining creditors to be settled or such other arrears as PAYE, VAT, or other applicable charges due to the business. Therefore, it is important to consider whether such liabilities have been cleared before commencing the process of liquidation under this route.
Whichever the type of liquidation or reason for wanting to Business Liquidation, it is necessary to consult a liquidation expert to help you plan for an efficient, cost-effective, and smooth exit from the business in question.
