Definition of liquidation

process of closing a business entity, including selling or disposing of the assets, paying the liabilities, and having whatever is left over returned to the owners.

1. conversion of assets into cash or inventory into accounts receivable to meet current obligations and service long-term debt of an organization. When an obligation is paid off it is said to be liquidated.
2. termination of a business by selling its assets and distributing the proceeds to meet current liabilities and claims of creditors. Debts are paid in order of priority and remaining assets distributed on a pro rata basis to owner or shareholders. In a voluntary bankruptcy petition, filed under Chapter 7 of the Bankruptcy Code, the debtor's assets are distributed to meet creditors' claims, in order of priority. A group of creditors can also file an involuntary bankruptcy petition, to force the sale and distribution of the debtor's assets.
3. closing out a long position or a short position.

procedure in which shareholders surrender all of their shares in a corporation and receive, after all creditors are paid, their pro rata share of any remaining assets and accumulated earnings and profits. Liquidation is deemed to occur when a corporation ceases to be a going concern and its activities are merely for the purpose of winding up its affairs, paying its debts, and distributing any remaining balance to its shareholders.

1. dismantling of a business, paying off debts in order of priority, and distributing the remaining assets in cash to the owners. Involuntary liquidation is covered under Chapter 7 of the federal bankruptcy law. See also junior security; preferred stock.
2. forced sale of a brokerage client's securities or commodities after failure to meet a margin call. See also sell out.