What is liquidation distribution?
Liquidating distribution is a type of corporation-built non dividend distribution that is made to its shareholders during its partial or complete liquidation. The company’s entire amount of equity is distributed, rather than just the its profits being shared.
Where have you heard about liquidation distribution?
If you’ve held shares in a company that has been liquidated, you may have experienced liquidating distribution. Liquidating dividend is classed as such when a company goes out of business and their net assets are allocated to their shareholders after liabilities have been paid.
What you need to know about liquidation distribution.
In some cases, liquidating distribution can be seen as a form of return capital. This is because the capital that has been invested in the company by its owners is then repaid to them as well, instead of just their earnings. If a company has less assets than liabilities then no liquidation distribution can be made at all. This is because there are no funds left after liability payment. This usually occurs in the case of bankruptcy liquidations. Liquidating distribution can also occur when a company sells a section of their business for cash and this is then distributed between shareholders.
Find out more about liquidation distribution.
If you’d like to further your knowledge of liquidating distribution, read about liquidation.