Liquidation & Dissolution
Liquidation & Dissolution
Margaret Parrish
ACC317 WK 4
July 25, 2012
You have a successful corporation but due to the economy you are struggling and you are faced with either liquidating or dissolving the company. What do you choose? First let’s understand the difference between Liquidation and Dissolution.
Liquidation refers to the complete sale of a business’ assets. Dissolution refers to the closure of a business; this is usually done by the owner of the company. (Johnson, 2012) When closure of the business is imminent if you were acquired by another corporation you can liquidate your assets to the company’s shareholders. The company’s assets can be either cash or property and the shareholders will then take responsibility for the liquidated company’s remaining liabilities. (Willens, 2008)
IRS Section 331 is a general rule that should be followed in regard to corporate liquidations. Section 331 states that the amounts distributed in a complete liquidation are treated as a full payment in exchange for stock. If the stock holder holds stock as a capital asset them the resulting gain or loss will be treated as a capital gain or loss. This rule is the same for corporate and non-corporate shareholders. For contributing property to generate a loss during liquidation, if the corporation does a 351 exchange or contribution to capital (from the sale or exchange of property having an adjusted basis) the adjusted basis is reduced but not below zero by the excess of the adjusted basis of the property on the date of the contribution and its fair market value.
The corporations expenses there were incurred as a result of the liquidation are deductible; however other expenses that were not part of the liquidation are not deductible. If property has been sold then this would be a selling expense and would reduce the gain or loss that from the sale. Capitalized organizational expenses can be deducted upon liquidation following section 165.
When a
Margaret Parrish
ACC317 WK 4
July 25, 2012
You have a successful corporation but due to the economy you are struggling and you are faced with either liquidating or dissolving the company. What do you choose? First let’s understand the difference between Liquidation and Dissolution.
Liquidation refers to the complete sale of a business’ assets. Dissolution refers to the closure of a business; this is usually done by the owner of the company. (Johnson, 2012) When closure of the business is imminent if you were acquired by another corporation you can liquidate your assets to the company’s shareholders. The company’s assets can be either cash or property and the shareholders will then take responsibility for the liquidated company’s remaining liabilities. (Willens, 2008)
IRS Section 331 is a general rule that should be followed in regard to corporate liquidations. Section 331 states that the amounts distributed in a complete liquidation are treated as a full payment in exchange for stock. If the stock holder holds stock as a capital asset them the resulting gain or loss will be treated as a capital gain or loss. This rule is the same for corporate and non-corporate shareholders. For contributing property to generate a loss during liquidation, if the corporation does a 351 exchange or contribution to capital (from the sale or exchange of property having an adjusted basis) the adjusted basis is reduced but not below zero by the excess of the adjusted basis of the property on the date of the contribution and its fair market value.
The corporations expenses there were incurred as a result of the liquidation are deductible; however other expenses that were not part of the liquidation are not deductible. If property has been sold then this would be a selling expense and would reduce the gain or loss that from the sale. Capitalized organizational expenses can be deducted upon liquidation following section 165.
When a
Cited: Dissolving a Corporation. (2012). Retrieved July 27, 2012, from Small Business Notes.com: http://www.smallbusinessnotes.com/managing-your-business/dissolving-a-corporation.html Filing with the State. (2012). Retrieved July 27, 2012, from Small Business Notes: http://www.smallbusinessnotes.com/managing-your-business/filing-with-the-state.html Liquidation Distributions to Shareholders. (2012). TaxHub. Notification to Creditors. (2012). Retrieved July 27, 2012, from Small Business Notes: http://www.smallbusinessnotes.com/managing-your-business/notification-to-creditors.html IRS. (2012). Publication 550. Johnson, J. (2012). Difference in a Liquidated Company and a Dissolved Company. Retrieved July 25, 2012, from smallbusiness.com: http://smallbusiness.chron.com/difference-liquidated-company-dissolved-company-23255.html Willens, R. (2008, February 20). What 's the Difference? Liquidation vs. Dissolution. Retrieved July 25, 2012, from CFO.com: http://www.cfo.com/article.cfm/10717892