What is the difference between dissolving and liquidating a company

16-Mar-2019 11:20

The most important difference between bankruptcy and winding up is that in a bankruptcy proceeding the property of the bankrupt passes to a trustee who is appointed by a court to sell the property to pay the debts of the bankrupt party.

However, in a winding up of a company, all the assets of the company still remain with the company until its dissolution, unless disposed of in the course of winding up by the liquidator.

In the next two sections, I will introduce you to these two variations and explain, briefly, how they apply to both individuals and companies.

Although the goal of the trustee is to pay back the creditors, it is rare for creditors to get back much of their money.

In fact, with a Chapter 7 bankruptcy, a creditor that recovers even 25 cents on the dollar (a quarter of the money that is owed) is considered fortunate. Chapter 7 liquidation can be used by both individuals and by companies.

If a corporation’s board of directors decides that the business needs to be wound down, there are a number of legal paths to consider.

Determining the best approach is fact-dependent, and the corporation and its board should get legal advice before making a decision.

In the next two sections, I will introduce you to these two variations and explain, briefly, how they apply to both individuals and companies.

Although the goal of the trustee is to pay back the creditors, it is rare for creditors to get back much of their money.

In fact, with a Chapter 7 bankruptcy, a creditor that recovers even 25 cents on the dollar (a quarter of the money that is owed) is considered fortunate. Chapter 7 liquidation can be used by both individuals and by companies.

If a corporation’s board of directors decides that the business needs to be wound down, there are a number of legal paths to consider.

Determining the best approach is fact-dependent, and the corporation and its board should get legal advice before making a decision.

The dissolution process can be less expensive than other alternatives, particularly when litigation or disputes over claims is unlikely. Under Delaware law, once the dissolution commences the corporation is no longer permitted to operate as a normal business.