What is the difference between liquidation and reorganization

The processes of reorganization and liquidation have much in common, although legally they are completely different individual procedures that have their own characteristics. The cessation of the organization - this is the main unifying similarity of these events.

Liquidation of an organization

The final and complete cessation of the enterprise implies its liquidation. Liquidation of an enterprise can be either voluntary or compulsory. Forced liquidation of the company occurs in case of detection by the regulatory authorities of gross violations of the law during the period of the enterprise. In case of voluntary liquidation, the company submits an application to regulatory authorities, conducts final financial settlements with suppliers and customers, reduces the balance sheet to zero.

In the process of liquidation, obligations arise for the final settlement of debts, bank loans, the issuance of cash benefits to employees, payment of mandatory payments to the state budget and contributions to other social funds.

Liquidation of a legal entity is carried out by a special liquidation commission in accordance with the established legislation.

Company reorganization

The reorganization process in the end is also the liquidation of the enterprise, but in this case all rights and obligations are transferred to another organization. There are several methods of reorganization of legal entities.

Upon the merger of organizations, the legal entity subject to reorganization transfers to the other all its rights and obligations. This kind of reorganization implies a reduction in managerial expenses, a combination of capitals, and economic efficiency from increasing the scale of production. The merger provides an opportunity to increase the competitiveness of the newly created enterprise.

Joining an enterprise as a way of reorganization involves the transfer of obligations and rights from an organization that ceases its activities to another business organization engaged in economic activity. In this case, the entire tax burden is borne by the existing organization. With this method of reorganization, another legal entity is not registered.

Allocation in the process of reorganization is applied in the event of the termination of the business organization and the formation on its basis of several new legal units.

The transformation procedure involves changing the legal and legal form of the organization to be reorganized. This is the transformation of one commercial enterprise into another with a change in ownership or status. In this case, the new legal entity is transferred all the obligations and rights from the previous organization.

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