The legal process, which is used to put a running business entity, or a company to an end, is known as Liquidation in the language of business. What actually happens in liquidation is that, in order to pay off the debts of the concerned business, all its assets are sold and converted into cash. Liquidation is also called dissolution or winding up of the company.

The option of liquidation is for the businesses that cannot pay off their debts. The creditors are given the possession of the assets of the company who then dispose these assets off in order to recover their maximum dues. During the process of liquidation, the creditors are on top of the priority list. Once the creditors are paid, the preferred shareholders are the next ones to get paid, common shareholders are then paid after the preferred shareholders.

Compulsory liquidation and voluntary liquidation are the two types of liquidation. In the compulsory liquidation, the decision is given by the court to pay the dues of the creditors by disposing off the assets of the company. Apart from the court, the company itself can apply for liquidation in the court; also, the creditors, and the contributors can apply. The reason underlining this decision is the inability of the company to clear its outstanding dues, and it becomes more beneficial to close the business instead of continuing it. In the case of voluntary liquidation, the decision to close the business is taken by the shareholders of the company; they collectively come to the decision of closing the company down.

The following steps are followed during the process of liquidation. Initially, a detailed inventory of all the assets of the company is prepared, splitting it into different categories. After that, an auction takes place for this inventory in which the decision is given in the favour of the highest bidder. Non-liquid assets are difficult to dispose off as compared to the liquid assets. Take an example of plant and machinery, which depreciates over the time, and hence is sold at a much lower price than it was bought on. For disposing off the real estate, the services of a real estate agent are taken, or it can be disposed off through a foreclosure.

An Insolvency Practitioner is hired for this entire process, who deals with the creditors, and the legal requirements of liquidation. Liquidation is not free; the costs of winding up your business can be considerable. For a small business, it costs around 7,000 pounds, which are payable to the Insolvency Practitioner.

Liquidation is a great decision to make, so before jumping to this decision take into account all other methods available for bailing you out of the situation. Some of the businesses decide to go for de registering them instead of liquidating their business. For this purpose, all you need to do is ask the registrar to remove your name from the register of companies.

Once your financial position recovers, you can again register yourself. An option for the businesses in UK is Phoenix, which enable them to start their business again. Phoenix work in a way that it liquidates the company first and after that it enables the businesses to start again with a new name. The benefit of this process is that it allows you to retain your customers, and suppliers. As there is nothing that can be done after the company is liquidated, therefore it is necessary to take this decision after careful consideration. If you have any plans of continuing the business once your financial position recovers, and you are back on the track, then you should better go for de registration. However, if you do not see any way of improvement and the business is only incurring losses, then it is better to liquidate the business concern.

Bobby Dazzler is a legal consultant. You can take his advice on company liquidation and protect yourself from your creditors. For more information visit his recommended website at http://www.beesley.co.uk.