Difference Between Liquidation & Winding Up

Close-up a sign that reads "going out of business"
Close-up a sign that reads "going out of business" (Image: MikeCherim/iStock/Getty Images)

Closing the doors on any business, whether private or public, requires specific steps to protect the owners or shareholders from future liability. When describing dissolution steps and procedures, many people use the terms liquidation and winding up interchangeably. Although these terms are similar, they commonly describe two different things.

Titling Differences

Business closures result either from a legal liquidation order, usually in response to a request from the business’s creditors, or from a voluntary liquidation decision made by the owner, partners or board of directors. When used in this context, liquidation refers to the process, and winding up refers to the steps involved in closing the business.

One Step Vs. Many Steps

Liquidation and winding up can also refer to steps required to close a business. In this context, liquidation is a single step while winding up is a process with multiple steps. Winding up procedures take place first. For a sole proprietor, this includes cancelling licenses and permits, issuing final paychecks, and paying taxes and creditors. Liquidation follows that, most often after the closing date.

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