The biggest similarity between bankruptcy and liquidation of a company lies in the fact that they are often both the last resort. They also seek the end result of managing assets to write off the debts of the company. However, there are also stark differences between these two options.
First, liquidation can happen because of stopped business operations, insolvency, or any other reason related to the company but bankruptcy refers to insolvency involving individuals. Hence, the former impacts only an individual, while the first affects all the stakeholders of the company like employees, directors, investors, and creditors as well.
In addition, in a liquidation, the company would be closed down in an organized and legal way and it is the professional liquidator that will do the job of disposing of the company’s assets to pay off its liabilities. On the other hand, under bankruptcy, the affected person will be relieved from the obligation of paying most of his or her debts.
What all this means is that the company that declared liquidation will stop its operations and cease to exist. Everything in it will cease to operate, employees will be terminated, assets will be liquidated and sold off, and offices will be shut down. Whereas the state of bankruptcy will only last a few years, writing off the credit of the affected individual.
Finally, and most important of all, it is crucial that you consult a qualified advisor if you think that your company is not able to keep up with its debts. There are also different options for company liquidation, so you’d be better off knowing the right option to take and the advisor can help you decide about it. Just keep in mind that either way, it is better to pay off the debts as much as your company can than facing a legal suitcase from its creditors.
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