Voluntary liquidation is a step which is taken by the shareholders of a company to pay all the outstanding debts. This is exactly the opposite of forced liquidation, such as in the case of bankruptcy, the court orders the sale of assets to pay all the debts of the company. In the case of voluntary liquidation, all the shareholders and the directors of the company agree for liquidation without any order from the court.
Some reasons why companies choose voluntary liquidation?
The company may opt for voluntary liquidation to help with the functioning of the company. If the company is facing some loss then the shareholders choose to liquidate the subsidiary company to settle all the outstanding debts. This way, the parent company will continue running smoothly. This procedure sometimes allows the owners to continue trading with this company and hope to earn profits at a later date.
If the founder or the owner of a small company dies, the shareholders can decide to sell the company, as they do not want to continue the operations. After selling the assets, the outstanding debts are settled and the shareholders will divide the remaining cash.
The structure for voluntary liquidation varies and it depends on the size and complexity of the business and the urgency to settle all the outstanding debts. In most of the cases, company officers have the list of assets which has to be sold and they handle the payment of debts. Finally, after selling the assets, the shareholders contact the vendors and make payments. Thus, the overall process of voluntary liquidation can take some time.