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Simple English definitions for legal terms
one-month liquidation
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A quick definition of one-month liquidation:
One-month liquidation is a special process where a company sells all its assets to pay off its debts. Shareholders can choose to receive their share of the money as a distribution. To qualify for this process, the company must complete the liquidation within one month. This process has tax implications for the shareholders.
In simpler terms, one-month liquidation is when a company sells everything it owns to pay off what it owes. Shareholders can choose how they want to receive their share of the money. But the company has to finish selling everything within one month to qualify for this process.
A more thorough explanation:
Definition: One-month liquidation is a process of converting a company's assets into cash to settle debts within a month. It is a special election available to certain shareholders that determines how the distributions received in liquidation by electing shareholders will be treated for federal income-tax purposes.
Examples:
- A corporation decides to liquidate its assets and settle its debts within a month. The shareholders who qualify for the election can choose how the distributions received in liquidation will be treated for federal income-tax purposes.
- A company partially liquidates its assets by distributing some corporate assets to shareholders on a pro-rata basis and continues to operate in a restricted form.
- A company adopts a liquidation plan to complete liquidation within 12 months, subject to a tax law prohibiting the company from recognizing any gains or losses on property sold within that time frame.
- A debtor goes through the process of liquidation under Chapter 7 of the Bankruptcy Code, where the nonexempt property is collected, converted to cash, and distributed to creditors to settle debts.
The examples illustrate the different types of liquidation processes that a company or debtor can go through to settle debts. One-month liquidation is a special election available to certain shareholders, while partial liquidation does not completely dispose of a company's assets. Twelve-month liquidation occurs within 12 months from adoption of the liquidation plan to complete liquidation, and bankruptcy liquidation is a process of collecting a debtor's nonexempt property to settle debts.