Liquidation and Dissolution

Liquidation and Dissolution

Kathrine D. Nepon

Strayer University

Donald Anderson

ACC317

July 24, 2011

1. Discuss the differences between a corporation that is liquidated and one that is dissolved:

Both terms refer to the final ending of a business. Liquidation itself is the process of selling off all of the assets, including inventory, and returning the money to the shareholders or owners. Dissolution refers to legally dissolving the corporation, the entity or business structure itself. When a corporation goes out of business, there are legal processes that the corporation will typically go through, including the liquidation of assets and the distribution of the proceeds to creditors and owners. This entire process is known as dissolution. Thus, the major difference between liquidation and dissolution is that liquidation is a part of the overall dissolution process. Though they are part of the same process their definitions are distinctly different. Dissolution is a legal concept that refers to the formal death of the corporation. Once a corporation completes the dissolution process, it is no longer a formal legal entity. A corporation can be dissolved voluntarily by its owners or involuntarily by the secretary of state in the state in which it is registered. As our text states:

“A corporate liquidation exists when a corporation ceases to be a going concern. The corporation continues solely to wind up affairs, pay debts and distribute any remaining assets to its shareholders. Legal dissolution under state law is not required for a liquidation to be complete for tax purposes. A liquidation can exist even if the corporation retains a nominal amount of assets to pay remaining debts and preserve its legal status” (Willis, 2011).

The liquidation of a corporation does not require a formal dissolution. A corporation can go through the entire process of ceasing business operations, selling its assets and paying off creditors while not formally dissolving. A business may do this if it wants to keep the legal identity of a business for use in another venture. This can be confusing, as one is a part of the other but can also be a process unto itself. That being said, liquidation can happen by itself but it is a necessary step in the dissolution process.

2. Analyze how assets are dealt with in both situations:

When the business closes down, or dissolves in a process called dissolution, the assets are distributed to the members or investors of the business. Since we have already established liquidation is a process of dissolution, we will next define the individual