It is the process by which a company is dissolved. The company’s business is closed down, its assets are sold off, the creditors are paid, the balance of the assets are distributed to the members and, at the end of the whole process, the company ceases to exist.
The registered capital represents the monies invested by the shareholders. In a company’s liquidation, the members will receive a return of the capital contributed if there is liquidation surplus available after the company pays off its debts.
The liquidity ratios measure a company’s ability to pay its short debt obligations. Examples of liquidity ratios include the current ratio, quick ratio and cash ratio. The current and quick ratios help the company to assess how fast it can convert its current assets into cash to fully pay its current liabilities.
On the other hand, the cash ratio determines the level of the company’s cash to meet its current laibilities obligations. By breaking down the liquidity ratio,it helps the company to better assess the overall liquidty or fluidity health of the company.
The investors or shareholders may place the company into voluntary members’ winding up for various reasons, such as the company has ceased business, no longer profitable or the company has achieved its purpose.
By dissolving the company when it is solvent, the investors or shareholders will receive their capital contribution back when the company makes a distribution of the liquidation surplus available after the company pays off all its debts.