Types of Closure



Types of Closure Methods Used
The owner of a business can exit from or close his or her business using one of the following options:
  1. Close Up - Close the business, sell assets, pay liabilities and stop trading.
  2. Sell Up - Sell the business as a going concern.
  3. Merge - Merge the business with another one.
  4. Succession - Pass the business on to family members or others.
  5. Bankruptcy - File for bankruptcy (if not a company) and close up.
  6. Liquidation - Liquidate and close the business (if a company).


1. Close Up the Business

This simply involves closing the doors, selling off all the assets of the business, paying off all business debts and creditors. Whatever remains goes to the owners. This option is generally used when the business is not profitable and cannot continue to trade or the owner does not wish to sell it.


2. Sell Up the Business

Here the owners have a good business which should not be closed up as it could be sold as a going concern for someone else to take over and run. The owner will want to come out ahead financially for all the hard work over the years so will try and negotiate a good price.


3. Merge with others
A merger theoretically is when two companies agree that they want to go forward as a single operation rather than being two separate entities. Usually a merger is a polite way of saying that one company has taken over another. Usually one of the terms of the deal was to let the CEO or Chairman of the company that was bought say that it is a merger of equals.


4. Succession - Transfer to family or others
If the business is a family business (usually it had been in the family for many years) then the current owner may wish to pass it on to members of the family. Generally the family would have a strong desire to see the business kept within the family group and passed from one generation to the next. However succession can also mean the sale of the business to employees or to others within the business such as the long-serving managers etc.

5. Bankruptcy - Business is closed by law
Bankruptcy is the legal process that gives immediate financial relief to people or businesses (sole traders or partnerships) with financial problems by stopping legal actions against them by their creditors. The legal process is controlled by law. It means the persons business and other assets are sold off to pay creditors of the business and any other debts that the person filing for bankruptcy has.


6. Liquidation - Company is wound up
The term liquidation applies only to companies, whereas the term bankruptcy applies to non-companies such as a partnership or sole trader. The most common form of liquidation occurs when creditors vote for liquidation of the company. The shareholders also can file for liquidation. The Court, following a creditor's application to wind up the company, will appoint a liquidator .