There are many reasons for a company liquidation, both voluntary and court ordered. Company liquidations allow a company to sell off assets to pay bills and cease operations. Also referred to as a dissolution or winding up, company liquidation is not always the culmination of bad business practices, or a failing business. Some businesses decide to disband and stop business operations when the owner retires, or if a company moves to another state to reincorporate in a new location.
Some situations dictate the closing of one company to open under a different name. For example, if an unincorporated sole proprietorship or partnership is pushed out of business by a corporation with that same name, the business that is incorporated legally trumps the unincorporated business entity. This is one of the reasons that attorneys recommend incorporation to reserve and protect a company name.
Some businesses, like construction companies, create and liquidate a different company with every project they start and finish. For a high-stakes business project where risk management is a concern and funds are allocated by the project, then it makes sense to use a corporate entity for each business venture.
Involuntary company liquidations are another type of liquidation. The main reason a company is ordered by the courts to liquidate is to pay off debt. Other situations that trigger a court ordered liquidation include companies that are effectively inactive and that have not completed a single transaction during the past year. Yet another type of court ordered liquidation occurs when a publicly traded corporation goes inactive by failing to issue a trading certificate over a twelve-month period.
A valid concern of company officers when contemplating a company liquidation is to preserve assets. Hostile employees upset over a company closing have been known to steal property in an attempt to get even. Heightened security measures are recommended in such cases. Installing security cameras and removing valuable property before making a public announcement about business liquidation are two prudent cautionary measures worth considering.
Some companies specialize in managing company liquidations. There are practical reasons for engaging a company to takeover and manage the liquidation of a company. If emotions run high and personalities thwart a manager’s best efforts to orchestrate a smooth transition, then calling in objective experts who have no staff connections or agendas provides a rational alternative.
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