Taxation of liquidating distributions


14-Feb-2017 16:02

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Selling a corporation involves both stock and the company's assets.Shareholders might prefer to sell their stock, but buyers might be more interested in the assets.Corporations, however, do not receive such favorable terms when selling assets. Cash paid to shareholders upon liquidation is also taxable.A limited liability company, or LLC, has significant tax advantages over a C corporation.When a company has more liabilities than assets, equity is negative and no liquidating distribution is made at all.

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He studied electrical engineering after a tour of duty in the military, then became a freelance computer programmer for several years before settling on a career as a writer.The directors then prepare and adopt a resolution giving the board and the company's officers the authority to execute the liquidation.Statements are normally issued to shareholders listing the fair market value of all assets distributed.This mainly occurs during voluntary liquidations of solvent corporations.

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Forming a C corporation was once the only way the owner of a small business could shield himself from the debts and liabilities of the company.Sales of stocks produce either a capital loss or gain.As of 2010, the federal tax rate for long-term capital gains was 15 percent, a rate favorable to those whose stock increased in value after purchase.The company must file a Form 966, "Corporate Dissolution or Liquidation," with the IRS.