...Liquidation and Dissolution Catricia K. Collins Professor W. Powell Advanced Federal Taxation Accounting 317 August 22, 2012 Liquidation and Dissolution "Complete liquidation" is a term not defined by the Code. The regulations under IRC section 332 suggest that the status of liquidation exists when the corporation ceases to be a going concern and its activities are merely for the purpose of winding up its affairs, paying its debts, and distributing any remaining balance to its shareholders. The Tax Court applies a three-pronged test to determine whether a complete liquidation has taken place: Was there a manifest intent to liquidate? Was there a continuing purpose to terminate corporate affairs and dissolve? Were the corporate activities directed and confined to that purpose? A corporate liquidation should be considered at two levels, the shareholder level and the corporate level. On the shareholder level, a complete liquidation can be thought of as a sale of all outstanding corporate stock held by the shareholders in exchange for all of the assets in that corporation. Like any sale of stock, the shareholder receives capital gain treatment on the difference between the amount received by the shareholder in the distribution and the cost or other basis of the stock. At the corporate level, the corporation recognizes gain or loss on the liquidation...
Words: 834 - Pages: 4
...Liquidation vs. Dissolution Myron D. Roberts Strayer University Advanced Federal Taxation ACC 317 Professor Sondra Smith September 7, 2012 In this paper, I will identify the differences between when a corporation liquidates and when it is dissolved. Companies no longer viable often have no alternative but to cease operations. When a company terminates its operation, it goes through a process known variously as liquidation and dissolution. Even though these terms are often used to describe the entire method of shutting down a business, they are actually two separate stages in the course of action. Discuss the differences between a corporation that is liquidated and one that is dissolved. “When a company goes out of business, there is a set of legal processes by which the company will typically go through, including the liquidation of assets and the distribution of the proceeds to creditors and owners. This entire process is known as dissolution. Therefore, the major difference between liquidation and dissolution is that liquidation is a part of the overall dissolution process” (Richards, 2012). “Liquidation refers to the complete sale of the business assets. “This means the conversion of something into cash. In the context of the business, this involves selling the assets of the company. This may be the best option if the company has no other option when business closure is imminent, such as a merger or acquiring emergency capital” (Johnson, 2012). Dissolution...
Words: 1050 - Pages: 5
...Corporate Liquidation vs. Dissolution Keith Williams Instructor: Jackie Russell Advanced Federal Taxation – ACC 317 February 5, 2012 Abstract Corporate Liquidation vs. Dissolution Keith Williams The purpose of this research paper is to answer the following questions: 1. Discuss the differences between a corporation that is liquidated and one that is dissolved. 2. Analyze how assets are dealt with in both situations. 3. Analyze how shareholders are treated in both situations. Every entrepreneur who starts a business must first decide which form of business organization will be most appropriate for their new endeavor. “Business enterprises customarily take one of three forms: individual proprietorships, partnerships, or limited-liability companies (or corporations)” (Business organization, 2011). In making this decision, entrepreneur’s need to consider a number of factors such as the ease of creation, the liability of the owners, tax considerations, the need for capital, and the business form. Traditionally, entrepreneurs’ have created one of the three major business forms which are the sole proprietorship, the partnership, and the corporation. Most large businesses that employ hundreds or thousands of workers are corporations. Furthermore, a corporation is an artificial being, existing only in state and/or federal law and is neither tangible nor visible. It is a business that has the legal status of an individual but is owned collectively by...
Words: 1375 - Pages: 6
...Insolvency Proceeding in Nepal – A case of Nepal Development Bank (NDB) The day when court orders for liquidation of a company, it is the most miserable day for it. But such a harsh decision is taken only after deep investigation of the case. All the possible methods are adopted to protect the company before the decision of dissolution is taken. Like in other countries, Nepal’s Insolvency Act 2006 also emphasizes to protect the company from liquidation. We have taken a real liquidation case of Nepal Development Bank (NDB) as an example to correlate with Insolvency Act 2006. NDB was a Class – B banking institution under the regularization of central bank – Nepal Rastra Bank (NRB). During the early years of establishment itself, NDB was trapped into a severe financial crisis. Being a regularizing body, NRB stepped in to rescue NDB but was unsuccessful. Finally, NRB decided liquidation of NDB. Generally practiced steps related to the insolvency are provided below and major proceedings held in case of NDB are linked with them as follows. 1. Administration When a company is trapped into financial trouble, either it voluntarily tightens its administration or the regulating body gets hold of it. This is first and most safe step to protect a company from dissolution or liquidation. The major objective behind holding the administration is to rescue the company from financial difficulties. In case of NDB, NRB took over its administration and try to rescue and revive for five years...
Words: 1056 - Pages: 5
...Mercantile society mercantile society (or commercial society ) is that one society that intends the one accomplishment or more transactions commercial or, generally, a subject activity to Straight mercantile . Civil society is against to . Like all society, they are beings which the law recognizes legal Personality own and different from its members, and that also counting on own Patrimony, canalizes their efforts to the accomplishment of a lucrative purpose that are common, with vocation like the benefits that are from the realized activities, will be only perceived by the partners. Antecedents The old one straight did not know Institution mercantile society with legal personality, the one that is creation of the modern world. Decrees of Bilbao only regulated the collective societies and the silent partners. Elements In the Mercantile Societies there are three fundamental elements: the social ones, patrimonial and the formal ones: • Personal element: It is constituted by the partners, people who contribute and reunite their efforts (goods, capitals or works) • Patrimonial element: It is formed by the set of goods that are contributed to form the share capital, the goods, work, etc. • Formal element: It is the set of rules regarding the form or solemnity with which one is due to have to the contract that gives rise to the society like a right individuality. Classification The mercantile Societies can be classified according to several criteria, between...
Words: 956 - Pages: 4
... Sponsored Links * Liquidation * Wood Flooring Liquidators Dissolving a corporation can be an extremely complicated process. For a corporation to be considered properly dissolved, the following steps are required: * a formal corporate action * a filing with the appropriate state offices * a statutory notice to creditors * processing of all creditor claims * sale and distribution of all remaining assets First, the corporation's board of directors has to meet and propose a corporate dissolution. Minutes of this meeting must be recorded by the corporation's secretary in the corporate book. After this has occurred, a majority of shareholders must approve the board of director's proposed dissolution action. The corporation is then required to file IRS Form 966 within 30 days after the adoption of a plan or resolution to dissolve the corporation. Also read Dissolving a Corporation: Necessary Legal Steps for more helpful pointers on this topic. State laws vary, but some states require approval by at least two thirds of all voting shares of the projected corporate dissolution. Read The Shareholders of a Corporation for some good advice on shareholder rights and responsibilities. In a number of states the corporation must file a Statement of Intent to Dissolve before initiating the closing stages of the procedure. Creditors must be advised of the imminent dissolution at this point, payment should be made...
Words: 897 - Pages: 4
...partnerships: a general partnership, limited partnership, or a joint venture partner. These three also need to be considered along with what type of partner each is going to be. When considering a partnership, there are many advantages of partnerships. For example, they are easy to establish and organize, the business benefits, along with many more. Like anything else in this world, there are also disadvantages of entering into a partnership. Things like being jointly and individually reliable for other partner’s actions, profits must be shared, and disagreements are all but guaranteed to arise. There are many more disadvantages that will be covered later on. I will also touch base on the FAS standards, including the creation, operation, and liquidation of partnerships. In the process of considering a partnership, it needs to first be decided the type of partner each wants to be in the partnership, then the type of partnership they want to form. There are three kinds of partners to be considered: a general partner, a limited liability partner, or a silent partner. According to The Basic Aspects of Partnership Accounting, “A silent partner is one who still shares the profits and losses of the business but who takes no active role in managing the business operations. Normally, the association of...
Words: 2202 - Pages: 9
...Business Entities Businesses are faced with many legal challenges in various stages: establishment, management, and dissolution. In two of following scenarios the legal aspects of establishing, maintaining and dissolving a partnership companies are identified. In the last scenario, the legal aspects of hiring a new employee are investigated. Restaurant/Bar Lou, Jose, and Miriam should create the business as a limited partnership. A limited partnership consists of one or more general partners and one or more limited partners. General partners manage the business and take personal liability for debts. Limited partners provide capital and are personally responsible for debts up to his or her investment in the company but are not involved in the management of the business. Lou and Jose who will be managing the business’s activities would be the general partners. Miriam who is providing the financial backing but will not be making daily business decisions would be the limited partner. According to the Revised Uniform Limited Partnership Act (RULPA), in order to begin their limited partnership, Lou, Jose and Miriam will need to create and sign a certificate of limited partnership (Cheeseman, 2010). In the state of Colorado, the group will need to create a name for the partnership that must contain either the word or abbreviation for limited partnership or company (State of Colorado, 2008). The document must also provide the address of the business, the type of business, an agent...
Words: 1627 - Pages: 7
...|Chapter 16 Test Bank | | | |DISSOLUTION AND LIQUIDATION OF A PARTNERSHIP | | | | | |Multiple Choice Questions | LO1 |1. | |Which statement is correct in describing the rank order of payments as specified by the Uniform Partnership Act? | | | | | | | | |a. |Payments to partners with loans to the partnership are ranked equally with payments to other creditors. | | | |b. |Payments to partners with loans to the partnership are ranked ahead of payments to partners without loans to the | | | | |partnership. ...
Words: 3209 - Pages: 13
...PARTNERSHIP ( It is a CONTRACT whereby two or more persons (1) bind themselves to CONTRIBUTE money, property, or industry to a COMMON FUND (2) with the intention of dividing the PROFITS among themselves or in order to EXERCISE a PROFESSION ( a STATUS and a FIDUCIARY RELATION subsisting between persons carrying on a business in common with a view on profit CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP [C, C, L, I, AS, NP] 1. CONSENSUAL ( perfected by mere consent 2. CONTRIBUTION of money, property or industry to a COMMON FUND 3. object must be a LAWFUL one 4. INTENTION of DIVIDING the PROFIT among the PARTNERS 5. “AFFECTIO SOCIETATIS” ( the desire to formulate an ACTIVE UNION, with people among whom there exist a mutual CONFIDENCE and TRUSTS 6. NEW PERSONALITY ( the object must be for profit and not merely for the common enjoyment otherwise only a co-ownership has been formed. HOWEVER, pecuniary profit need not be the only aim, it is enough that it is the principal purpose BUSINESS TRUSTS ( when certain persons entrust their property or money to others who will manage the same for the former RULES ON CAPACITY TO BECOME A PARTNER 1. a person capacitated to enter into contractual relations may become a partner 2. an UNEMANCIPATED MINOR CANNOT become a partner UNLESS his parent or guardian consents 3. a MARRIED WOMAN, cannot contribute conjugal funds as her contribution to the partnership UNLESS...
Words: 8589 - Pages: 35
...Page 1 of 19 PARTNERSHIP It is a CONTRACT whereby two or more persons (1) bind themselves to CONTRIBUTE money, property, or industry to a COMMON FUND (2) with the intention of dividing the PROFITS among themselves or in order to EXERCISE a PROFESSION a STATUS and a FIDUCIARY RELATION subsisting between persons carrying on a business in common with a view on profit CHARACTERISTICS OF THE CONTRACT OF PARTNERSHIP [C, C, L, I, AS, NP] 1. CONSENSUAL perfected by mere consent 2. CONTRIBUTION of money, property or industry to a COMMON FUND 3. object must be a LAWFUL one 4. INTENTION of DIVIDING the PROFIT among the PARTNERS 5. “AFFECTIO SOCIETATIS” the desire to formulate an ACTIVE UNION, with people among whom there exist a mutual CONFIDENCE and TRUSTS 6. NEW PERSONALITY the object must be for profit and not merely for the common enjoyment otherwise only a co-ownership has been formed. HOWEVER, pecuniary profit need not be the only aim, it is enough that it is the principal purpose BUSINESS TRUSTS when certain persons entrust their property or money to others who will manage the same for the former RULES ON CAPACITY TO BECOME A PARTNER 1. a person capacitated to enter into contractual relations may become a partner 2. an UNEMANCIPATED MINOR CANNOT become a partner UNLESS his parent or guardian consents 3. a MARRIED WOMAN, cannot contribute conjugal funds as her contribution to the partnership UNLESS she is permitted to do so by her husband...
Words: 8779 - Pages: 36
...S.50. Personal profits earned after dissolution Subject to Contract between the partners, the provisions of clause (a) of S.16 shall apply to transactions by any surviving partner or by the representatives of a deceased partner, undertaken after the firm is dissolved on account of the death of a partner and before its affairs have been completely wound up: Provided that where any partner or his representative has bought the goodwill of the firm, nothing in this section shall affect his right to use the first name. Profits by partner after dissolution and before winding up- Where a partner, after dissolution and before the affairs of the partnership are wound up, derives any profit for himself from any transaction of the firm, or from the use of the property or business connection of the firm or the firm name, he shall account for that profit and pay his share to the surviving partner or the representative of the deceased partner. But if a partner carries on another business of a similar nature, this section would not apply. For example, A and B carry on business in partnership. The firm holds leasehold for the purposes of the business. A dies. Before the affairs of the firm are completely wound up, the lease expires and B renews it. The renewed lease is partnership property. Dissolution of firm does not put an end to rights accrued during existence of partnership.- Mere execution of deed of dissolution did not discharge the parties thereto from their rights and liabilities...
Words: 2588 - Pages: 11
...Part 1 Business Enterprises in China 1.0 Introduction 2.0 Proprietorships 3.0 Partnerships 4.0 Corporates 1.0 Introduction In the People’s Republic of China, business organizations may be classified in to three main classes: individual proprietorships, partnerships, and corporations. The laws that effect these forms of business enterprises are diverse. There is no single code or statute that governs the PRC law of business enterprises. According to the sources of capital, there are domestic capital enterprises which are regulated by Sole Proprietorship Enterprise Law of the People's Republic of China , Partnership Business Law of the People's Republic of China, and Company Law of the People's Republic of China and foreign capital enterprises which are regulated by The Measures for Administration of the Establishment of the Partnership by Foreign Enterprises or Individuals within the Territory of China, Law of the People’s Republic of China on Chinese-Foreign Con-Tractual Joint Venture, Law of the People’s Republic of China on Chinese-Foreign Equity Joint Ventures, and Law of the People’s Republic of China on Foreign – Capital Enterprises. The relevant laws are the Security Law , the Fair Competition Law and the Antitrust Law. 2.0 Proprietorships 2.1What is a sole proprietorship enterprise A sole proprietorship enterprise means a business entity established within China with its capital contributed by one individual and its assts owned personally by the sole proprietor...
Words: 12251 - Pages: 50
...Chapter 32 Contracts of Partnership • Personal liability – if the partnership is contractually bound, each partner has joint and several, unlimited personal liability. • Joint and Several Liability- a creditor may sue the partners jointly as a group or separately as individuals. Authority to Bind Partnership- a partner who has actual authority (expresses or implied) or apparent may bind the partnership. • Actual Express Authority- authority set forth in the partnership agreement, in additional agreements among partners, or in decisions made by a majority of the partners regarding the ordinary business of the partnership. • Actual Implied Authority- authority that is reasonably deducted from the nature of the partnership, the terms of the partnership agreement, or the relations of the partners. • Apparent Authority- an act of a partner for apparently carrying on in the ordinary course the partnership business or business of the kind carried on by the partnership binds the partnership, so long as the person has no knowledge or notice of the lack of actual authority. Partnership by Estoppel- imposes partnership duties and liabilities on a non partner who has either represented himself or consented to be represented himself or consented to be represented as a partner. Torts and Crimes of Partnership Torts- the partnership is liable for loss or injury caused by any wrongful act or omission or other actionable conduct of any partner while acting...
Words: 1074 - Pages: 5
...ACT325_mod1 xxxxxxxxxx ACT 325 – Principles of Financial Accounting II October 4, 2015 ACT325_mod1 | | | | | | | | | | Date | | Account Titles and Explanation | P. R. | Debit | Credit | a. | | Other Assets - Starting balance | | | 106,000 | | | | | Sale of Other Assets | | | | 85,000 | | | | | Balance Remaining; Loss | | 21,000 | | | | | | | | | | | | | | $21,000 divided by total of all ratios 10 = $2,100 | | | | | | Sand has 1 share of the partnership | | | | | | | 2,100 x 1 = 2,100 | | | | | | | | Mell has 4 shares of the partnership | | | | | | | 2,100 x 4 = 8,400 | | | | | | | | Rand has 5 shares of the partnership | | | | | | | 2,100 x 5 = 10,500 | | | | | | | | | | | | | | | | b. | | Sand - Starting balance | | | | | 1,200 | | | | Deducting Sand's share of loss | | 2,100 | | | | | Deficit balance of capital account | | -900 | | | | | | | | | | | | | | Mell - Starting balance | | | | | 11,700 | | | | Deducting Mell's share of loss | | 8,400 | | | | | Balance of capital account | | | 3,300 | | | | | | | | | | | | | Rand - Starting balance | | | | | 15,100 | | | | Deducting Rand's share of loss | | 10,500 | | ...
Words: 427 - Pages: 2
