Businesses help American citizens buy commodities to live on, purchase electricity, pay for natural gas, sell used items, browse the Internet, and virtually everything else related to anything. In the most recent United States Small Business Administration statistics covering 2010, nearly twenty-eight million businesses existed in the good ol’ USA. Small businesses made up over 99% of this number, with 27.9 million small businesses and only 18,500 organizations with more than 500 employees.
Corporate and small-scale businesses close often, with the portion of small businesses failing far exceeding that of larger, well-established entities. About 80% of small businesses fail in the first year-and-a-half. Massive, publicly-traded corporations undoubtedly last longer on average Either way — businesses in the United States close frequently. As such, everyone should know at least something about the basics of business dissolution.
What is dissolution?
Dissolution is also known as liquidation, in which business operations are effectively ceased, ending the life of the business.
What are the types of dissolution?
Two primary types of dissolution exist: compulsory and voluntary liquidation. Compulsory liquidation is dissolution in which a court of law rules that a business entity be eliminated, either at the request of its owners or otherwise. Such reasons include the entity being unable to satisfy creditors’ legally-enforceable claims, or business owners forced to take liquidation disputes to court in settling who is owed how much.
Voluntary liquidation does not involve the action of a court of law, in which directors, owners, shareholders, or other decision-making members settle the distribution of assets and liabilities on their own.
What’s the difference in liquidation between various types of businesses?
Dissolution varies depending on what type of business the entity being liquidated is incorporated as. Sole proprietorships being dissolved have assets and liabilities in whole promulgated to the single owner.
Corporations being dismantled must pay creditors in full prior to any shareholders receiving claims to assets. If the entity does not have enough liquid capital to pay creditors, equipment, inventory, and other assets are usually auctioned off. If there are any assets remaining, they are distributed to shareholders based on their percentage of ownership.
Partnerships are by far the most difficult entities to liquidate. Partnerships are made up of individual owners sharing interests operation, assets, and liabilities depending on their particular situation. Their articles of incorporation detail percentage ownerships of partners and how assets are distributed. Whereas other business units can reliably be liquidated in certain manners, partnerships always depend on their articles of incorporation, signed prior to the organization being founded.