What Are Liquidation Distributions?
Liquidation is the process of discontinuing a company, selling the assets and using the proceeds to pay creditors and shareholders. Investors receive payments of their initial investment or current share of ownership after creditor liabilities are satisfied. Companies liquidate for many reasons, such as bankruptcy or simply deciding to dissolve.
Complete Liquidation
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Complete liquidation involves a company transferring ownership of all its assets to its shareholders. The shareholders assume any remaining company debt, becoming responsible for prioritizing and paying off that debt. You pay off creditors if there are sufficient assets to satisfy the liabilities, otherwise creditors receive payment for a percentage of the debt. Any excess proceeds can be distributed to shareholders.
Partial Liquidation
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In a partial liquidation a company redeems all or part of its outstanding stock then distributes the proceeds to its shareholders. You might choose partial liquidation if a segment of your company is discontinued because it was destroyed. The company can distribute the unused insurance proceeds recovered as a result of the destruction in exchange for its shareholders’ stock, qualifying as a partial liquidation distribution.
Provisional Liquidation
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Provisional liquidation protects a company’s assets during the liquidation process. If there are concerns that the company’s affairs are not being properly conducted, a shareholder or creditor can request a court appointed provisional liquidator to oversee the company’s assets, liabilities and distribution process through completion.
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Writer Bio
Cheryl Royal has been a writer since 2006, frequently working with small businesses. She holds a Bachelor of Science in accounting from Southern University in Baton Rouge.