Tax implications of liquidating a company


14-Sep-2020 11:50

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The company may also be put into receivership, which is where an external receiver takes over the company’s assets and sells them to pay off secured debt. If going into administration or receivership does not lead to a viable arrangement, then liquidation is the alternative.

Liquidation is the formal process for winding up a company’s financial affairs to settle debts with the proceeds of the sales of its assets.

It does not take into account your particular objectives and circumstances.

No person should act on the basis of this information without first obtaining and following the advice of a suitably qualified professional advisor.

For companies, the terms typically used would be to “go into administration” or “liquidation”. A sole trader is less complicated to wind up because the principal of the business is also personally responsible for all debts and liabilities accrued by that business.

Dealing with a company wind up To wind up a business in a company, a trustee may be appointed (either by yourself or by your creditors) to conclude all current contracts, sell remaining stock and other assets, pay outstanding debts and creditors, and notify all concerned (the bank, customers, suppliers). Voluntary administration is where a company’s directors hand over the business to a professional administrator to decide on the best plan of action.

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It is generally less complicated to wind up the business of a sole trader (who has declared “bankruptcy”) than to wind up a business run through other structures.

The first step is a meeting of directors and appointment of an administrator, who will try to salvage the business’s financial standing.

Apart from a director voluntary administration (where the directors opt to place the business in an external administrator’s hands), a firm going into administration may also be initiated by a secured creditor or the company’s shareholders.

Beware of the tax implications Some general tax implications to consider when winding up your business include the following.

Asset sale Of course, as with every other stage of the business life cycle, you will have to factor in the tax consequences of dealing with the business’s financial woes.If you are a sole trader winding up your business or if you own shares in a company being wound up, and you sell the assets of the business or the shares in the company to a “white knight”, you will still be subject to tax on the sale.