Discuss at least two potential consequences to shareholders that could result from the liquidation
of a closely held corporation
Solution
Two potential consequences to shareholders that could result from the liquidation of a closely
held corporation are :
(a) Shareholders are the last persons to get paid up: Shareholders are the last in line to get paid
up at the time of liquidation.Creditors, Financial Institutions, debenture holders etc are the first to
be paid at the time of liquidation. Also preference shareholders are paid in priority to equity
shareholders.
(b)Tax Consequences: At the time of liquidation , the assets or value of the shares revecived by
them is computed to be as Capital gains rather than dividens. Which in turn has high tax impacts
on their returns..
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Discuss at least two potential consequences to shareholders that cou.pdf
1. Discuss at least two potential consequences to shareholders that could result from the liquidation
of a closely held corporation
Solution
Two potential consequences to shareholders that could result from the liquidation of a closely
held corporation are :
(a) Shareholders are the last persons to get paid up: Shareholders are the last in line to get paid
up at the time of liquidation.Creditors, Financial Institutions, debenture holders etc are the first to
be paid at the time of liquidation. Also preference shareholders are paid in priority to equity
shareholders.
(b)Tax Consequences: At the time of liquidation , the assets or value of the shares revecived by
them is computed to be as Capital gains rather than dividens. Which in turn has high tax impacts
on their returns.
