“Liquidation (Voluntary)” refers to the decision of a corporation’s shareholders to liquidate the firm on its own terms (VL). Sometimes, when a business no longer sees a compelling reason to keep going, they decide that it’s in their best interest not to. The most crucial consideration is that the company’s dissolution was not mandated by a court.
The Voluntary Liquidation Process
As part of the voluntary liquidation process, companies are permitted to wind down their business and dissolve their corporate structure while reimbursing creditors in line with their order of precedence.
The first stage in a company’s voluntary liquidation is to vote in favour of a resolution to discontinue further operations. The liquidation may only be completed with the approval of the shareholders.
Involuntary Liquidations occur when a firm is compelled to shut its doors for any number of reasons
A variety of factors set voluntary liquidations apart from forced ones. When a company is forced to liquidate and sell its assets because of economic conditions, corporate regulations, or a legal ruling, this is known as an involuntary liquidation.
When a public company files for bankruptcy, this is a common case of forced liquidation. According to the legislation, a smaller family-owned firm may be liquidated in the event of a death or divorce.
Unfavorable operating conditions or inability to operate
In certain situations, voluntary liquidations may be the best option for companies with unproductive operations and poor operating conditions, even if they are not required. A high-cost oil producer, for example, may forecast a period in the near future when oil prices will be relatively low. They have the option to freely sell their assets even if they have not yet been declared bankrupt.
Reductions in taxation
The voluntary liquidation of your business operations may be eligible for tax savings for shutting, restructuring, or transferring assets to other enterprises in exchange for shares of the acquiring company. As a consequence, the target company benefits from favourable tax treatment for the transaction’s stock component.
Intent scribbled on paper
Additionally, a company may be driven out of existence if it is just there to fulfil an agreed-upon function and time frame. Special purpose entities (SPEs) and SPVs, for example, are subsidiaries that are created only for the purpose of taking on financial obligations in order to minimise risk. Firms may opt to be dissolved voluntarily if they are no longer needed in the marketplace.
The founder of the business has resigned from his position (or another key executive)
Another option is to dissolve the company in the event that a key employee leaves. When a business founder leaves and the stockholders decide not to continue operations, it is regarded to be a failure. After the founder retires, it is common for a business to no longer function in the same manner it did before.
Voluntary Liquidation is a way for companies to liquidate their assets without having to go through the courts.
Voluntary liquidations may be initiated and the liquidation procedure may commence upon the occurrence of an event defined by the board of directors. In certain cases, the appointment of a liquidator is required.