Complete Liquidation

In a complete liquidation, the company transfers 100 percent of its assets and liabilities to the shareholders. The company often hires an outside business to manage the liquidation process. The first step in the liquidation process involves identifying the companys assets and liabilities. As long as sufficient assets exist to satisfy the creditor liabilities, the creditors are paid off. If there is not enough in assets to satisfy the creditor liabilities, each creditor receives a percentage of the debt. If additional assets exist after the creditors are satisfied, the remaining amount is distributed to the shareholders.

Capital Gain or Loss

The shareholders who receive a partial or complete liquidation distribution need to determine if they experience a capital gain or capital loss as a result. The shareholder needs to know his basis in each share of stock. After looking at his records to determine what he paid for the stock, the shareholder compares this amount to the amount received in the liquidation distribution. If the liquidation distribution is greater than the shareholders basis in the stock, he experiences a capital gain. If the liquidation distribution is less than the shareholders basis in the stock, he experiences a capital loss. The shareholder will pay taxes on any capital gains.

Provisional Liquidation

References

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