What is the difference between dissolving and liquidating a company

Company management, however, was blissfully unaware of this development and continued to file the business's federal corporate income tax return and pay all federal income taxes.Eventually, company officers learned of their plight and reincorporated the business in the same state.

Once the activities of the company are wound up, it can begin to liquidate its assets.

The assets that typically require liquidation are inventory, raw materials, equipment, plants and buildings.

An enterprise with floundering operations and whose existence is no longer feasible may be better off by closing down operations.

Yet, it is more difficult to stop running a business because the procedure is technical and takes time. This method refers to the absolute sale of the corporation’s assets.

At issue is whether the company's status as a corporation had been terminated by the administrative dissolution. Something else to consider is that under Section 336(a) of the tax code, a gain or loss is recognized by a liquidating corporation on the distribution of its property in complete liquidation, as if such property were sold to the distributee at its fair market value. 142 ) states that "...where a corporation ceases business operations, has retained no assets, has no income, and has actually liquidated, there is in effect a de facto dissolution, even though the corporation has not been formally dissolved..." In addition, it is entirely possible for the corporation to continue in existence even though it has been, as a matter of state law, dissolved.

If it is considered terminated, the company would have been viewed as having completely liquidated, and both it and its shareholders would have experienced the tax consequences attendant to the situation. In other words, in most cases, the liquidation of a corporation commonly engenders two levels of taxation: tax will be imposed at both the corporate and distributee shareholder levels.* The De Facto Company Closure A complete liquidation is not always accompanied by a formal or legal company shutdown. Thus, unless dissolution brings about an automatic transfer of the corporation's assets to its shareholders, the corporation, even though dissolved, continues its existence.

The process of liquidation also arises when customs, an authority or agency in a country responsible for collecting and safeguarding customs duties, determines the final computation or ascertainment of the duties or drawback accruing on an entry.

Liquidation may either be compulsory (sometimes referred to as a creditors' liquidation) or voluntary (sometimes referred to as a shareholders' liquidation, although some voluntary liquidations are controlled by the creditors, see below).

In addition, the term "liquidation" is sometimes used when a company wants to divest itself of some of its assets.

This is used, for instance, when a retail establishment wants to close stores.

Company dissolution indicates the voluntary closure of a company calls for the payment of all federal and state taxes.

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