Corporations can also be dissolved and liquidated. A corporation is dissolved when it ceases to exist as a legal entity. A liquidated corporation, on the other hand, is one that has collected its assets, paid its debts, and distributed what remained to its shareholders. The corporation is dissolved, and the corporate assets are liquidated. ''Winding up'' is the process of liquidating.
In a voluntary dissolution, the shareholders usually adopt a plan of dissolution, which sets forth the steps that will be taken toward liquidating the corporation:
Collecting the corporate assets Paying or providing for corporate debts, and Indicating how the remaining assets will be distributed to the shareholders
In the liquidation of an insolvent corporation, usually carried out by a trustee in bankruptcy, the corporation's creditors will recover only a fraction of their claims. Laws govern the order in which the corporation's assets will be allocated among its creditors. A creditor's priority depends on the nature of its claim.
In the liquidation of a corporation dissolved as a result of court action, a court-appointed person must work out a liquidation plan under court supervision. If the corporation is insolvent, the claims have to be paid according to established rules of priorities for distributions: First priority goes to the expenses of the liquidation Second priority goes to the debts and obligations of the corporation Last priority goes to the shareholders
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