Liquidation of a company meaning
Liquidation is a formal procedure of closing a business during which a company ceases all commercial activities in order to pay off all debts and stop its operations. Whether a company is brought to an end by a voluntary decision of its members or as a result of creditors’ lawsuit filed before the court, a company is required to comply with legal formalities. If you wish to consider ceasing your business, it is better to seek advice with a local consultant. Each country has its own rules, though the general principles are similar.
Once the decision is made, all affairs are taken by a liquidator who becomes an official representative of the company. His role can be compared to a director with a few exceptions. While a director performs day-to-day management, liquidator’s duties include preparation of final liquidation balance sheet, notifying creditors about liquidation, collecting and settling debts and selling company’s assets. Sometimes, it can be uneasy task as there can be more creditors than a liquidation balance can cover. That is why, a liquidator prepares a liquidation plan to distribute the property effectively. Of course, company’s members are interested in receiving profits too. Thus, when choosing a liquidator, it is essential to remember that the liquidation is the art of management, just like with normal business affairs.
It may take up to several months or even several years until a company is liquidated. Evidently, it is difficult to predict an exact time. The more employees and creditors you have, the longer it takes. Otherwise, if your company didn’t perform any activities, it will be a quick and simple, but formal procedure.
Finally, once all debts are settled and other formalities have been complied to, a company is written off from a commercial register.
4 thoughts on “Liquidation of a company meaning”
I thought I knew it all about liquidation. It has occurred to me clearly that I need to look for more insights into company liquidation. I’d really appreciate it, however, if someone would explain to me categorically on the roles of the liquidator. Like why is it necessary to have one when I decide to terminate my company?
Thank you for your comment, Collins. To answer your question, let’s imagine life of a company. Company is managed by CEO who is responsible for day-to-day activities. Once a company is under liquidation it stops doing business, but it nevertheless continues to exist until all issues are solved. So, you need someone who will conduct liquidation, for example, pay final taxes, sell property, pay all debts, etc. This is all done by liquidator.
Resourceful information, however, just a quick one. What else could prolong the liquidation process apart from having numerous employees and several creditors? I’d like to know if possible, for how long can the process take if there are other issues involved too.