Liquidation is a procedure under which an organisation needs to sell all their assets to pay off their creditors. After the selling process is complete, the amount is used to pay off creditors and the remaining money is distributed amongst the partners. The procedure is also sometimes called dissolution of business.
Nowadays, many businesses are opting for liquidation, as it is a better option than bankruptcy. Generally, liquidation is categorised into two types, which are: voluntary liquidation and compulsory liquidation.
Compulsory liquidation
This type of liquidation occurs when the court orders a business to liquidate all of their assets to pay off their creditors. In this type of liquidation, businesses are required to comply with court orders. If they fail to fulfil the court orders then it may lead to more legal problems.
Voluntary liquidation
This type of liquidation differs from compulsory liquidation, as voluntary liquidation is an initiated by the owners themselves. For this, all the shareholders and partners of the business decide to wind up the company.
Steps in business liquidation
First of all, the company needs to prepare a detailed list of all of their assets and then categorise them. This is done on the basis of different types of assets.
Finally, the business officers will sell all of the assets. Liquidation is definitely one of the best ways to pay off creditors and avoid further complications.