Comparison of Liquidation and M&A

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Comparison of Liquidation and M&A

It may be easy to close a business with a liquidation process, however, all those efforts and all the technology and know-how will be worthless. Not to mention, key customers, vendors and staffs, will all be affected, as well. So, what if a business sold with a friendly M&A? What’s the difference?

Usually when liquidation or closing a company, asset will be disposed in a very low value. Furthermore, taxes imposed on gain after Liquidation and dividend paid to shareholders. Thus why, Selling-a-company (Stock Transfer) is a better option than just closing-a-company, especailly when a founder want to exit from a business. Not only financially making sense, selling-a-business will allow the founder to take his profit while the business entity can exist at the same time, a truly “Happy retirement”.

The valuation of a business is definitely higher in case of business continuation than to liquidation. Also, tax imposed on gain from disposal of asset, income tax levied on dividend, all these will reduce the amount a shareholder can get after a liquidation. However, a shareholder will have higher net gain if selling a company rather than liquidation.

In the following example, you may find how a different tax rate will effect the amount of net gain a shareholder may get after selling a company or liquidating a company. When a tax rate of 40% corporate tax imposed on gain from disposing the asset, following by income tax on dividend, by Selling-a-company a shareholder may generate net gain as twice to the liquidation.