How Can Voluntary Liquidation Benefit A Limited Company

Posted by bridge newland on March 23rd, 2020

When a limited company (LC) — wherein the stakeholders are legally considered a separate entity from the company itself — doesn’t have the capability to pay off debts, undertaking voluntary liquidation is one of the paths the company can take. It’s also an ideal solution if the stakeholders want to cease the operations of the business.

If you face either of the situations above and you’re wondering — How do I actually liquidate my company? — then this read is for you. In this article, we’re tackling how voluntary liquidation can benefit a limited company.

What Is Voluntary Liquidation

As its name implies, this type of liquidation is a self-imposed one. Contrary to its involuntary counterpart, which is ordered by a court or a regulatory body, this one comes from the mutual agreement of the company’s shareholders and board of directors.

The main purpose of liquidation is to cease the company’s operations, sell off business assets, settle financial obligations, and dismantle its corporate structure in a legal and orderly manner.

How It Is Done

If you’ve got questions to the tune of How to properly liquidate my company? This section is dedicated to you.

First up, the company (as represented by at least one company director) will have an initial consultation with a firm that provides liquidation services and assistance. This is where the financial situation of the company will be explained.

Next, your liquidator will assess and review all the information given to them. A plan as to how the liquidation will be carried out will be designed.

If the company agrees with the liquidator’s plan and terms, the proper instruction to liquidate will be given. Then, meetings of shareholders and creditors will be held. During these meetings, creditors will have the chance to forward any queries.

Once both parties agree with the liquidation terms, the formal procedure will take place.

What Are Its Perks

When a limited company is unable to pay off debts, voluntary liquidation is an effective means to meet debt obligations. One of the many benefits this procedure offers for an LC is that only the assets of the company are to be liquidated — the personal assets of the stakeholders are protected unless the stakeholders have committed wrongdoing that led to the company’s inability to pay its creditors.

After the liquidation is done, any remaining liabilities will be written off. This will free the stakeholders and the directors from the rather overwhelming pressure that comes from debts that keep on piling up. If they wish, they can even move forward and start a new business undertaking, granted that they don’t have personal liabilities.

Another benefit is that any legal action against the company will also be halted. Plus, terms on lease and purchasing agreements will also be terminated.

Touted to be a relatively economical option, liquidation also gives the company directors more control over the facilitation of the necessary procedures. And with the aid of licensed liquidators, the process can be done efficiently and smoothly while controlling pressure and even preventing the aggressive threats from creditors.