Liquidating Distribution

A liquidating distribution refers to the return of capital to shareholders during the process of dissolving a company, either through bankruptcy, acquisition, or voluntary liquidation. When a company is liquidated, its assets are sold, and the proceeds are used to repay creditors first. Any remaining funds are then distributed to shareholders as a liquidating distribution. These payments are typically made in proportion to each shareholder’s ownership stake.

Example

When a company is dissolved, its remaining assets are sold, and after paying off creditors, the remaining $1 million is distributed to shareholders based on their ownership percentages.