Corporate Liquidation

When does a corporate liquidation exist for tax purposes?

A corporate liquidation exists for tax purposes when a corporation is no longer a going concern. At the point of a corporate liquidation, the corporation is still in business only to finish off affairs, pay debts and distribute any remaining corporation's assets to its shareholders.

A corporate liquidation exists for tax purposes even if the corporation retains a small amount of assets to pay remaining debts and preserve legal status.

Reasons for a corporate liquidation

There are many reasons why a corporation 's shareholders may decide to liquidate a corporation. Examples of common reasons for a corporation liquidation are:

• The corporation 's business has been unsuccessful.

   

• The shareholders wish to acquire the corporation' s assets

   

• Another person or corporation wants to buy out the corporation 's assets.

For a corporation buyout, the buyer may buy the shareholders' stock and then liquidate the corporation to acquire its assets. Or the buyer of the corporation may buy the corporation's assets directly from the corporation.

After the majority of the corporation's assets are sold, the rest of the assets and the sale proceeds are distributed among the shareholders of the corporation.