Concept And Meaning Of Liquidation And Reasons For Liquidation

Concept Of Liquidation

A company is an artificial person created by law and the law alone can dissolve it. The legal procedure by which the corporate life of a company brought to an end is known as liquidation. The liquidation of company may be defined as " the termination of legal existence of company by closing its business". Liquidation is also termed as winding-up a company.

The process of winding-up of a company is completed by selling all its assets and paying all creditors in preferential orders. For this purpose, a liquidator is appointed by the court to complete the liquidation process.The duties of the liquidator are to realize the assets, discharge the liabilities and distribute the surplus, if any, to the shareholders of the company.

One thing here should be noted that liquidation and bankrupt of a company is not the same thing. A company which is liquidated need not necessarily bankrupt. Sometimes even in terms of sound financial position, a company may be proposed to be liquidation. Thus, for liquidation, it is not necessary to be bankrupt. But bankrupt will certainly lead to liquidation.

Reasons For Failure Of Business or Liquidation
A company may be dissolved for several reasons. Some of them are:
1. No visionary management
2. Day by day increasing debt and inability to pay it.
3. Unnecessary fictitious assets raising in accounts
4. Involvement of company in fraudulent activities
5. Exploitation of minority shareholders
6. High level competition in the market
7. Frequent change in the government policies
8. Absence of profit planning control and continuity of losses for several years.

Related Topics
Concept And Preparation Of Liquidator's Final Statement
Calculation Of Liquidator's Remuneration

1 comment:

  1. But i wnt to know what are d financial reasons for liquidation