Winding Up Definition

What is winding up? 

Winding up is one step in dissolution, where the owners work to “wind up” the business operations. During winding up, the owners publicly announce the closing and distribute the value of the business to creditors and shareholders. According to the winding up business definition, the owners will sell off the business or liquidate the business assets. Once the business assets are liquidated, the business will pay off creditors. Shareholders get paid last out of any remaining assets.

What are the steps to winding up?

If you run a limited liability company, you can follow this list for winding up:

• Complete all contracts and obligations
• Collect all company assets 
• Appraise all company assets 
• Sell property that will not be distributed to members 
• Pay debts to creditors other than members 
• Pay debts to member creditors 
• Pay the costs of winding up company affairs (like to a liquidator) 
• Set aside a contingency fund to pay any taxes or liabilities that arise following dissolution 
• Return capital contributions to members 
• Apportion profits or losses among members 

Corporations take similar steps for winding up. It’s important to follow your state’s requirements for your legal entity. Don’t forget to cancel any business licenses and file final tax returns with the IRS and the state. Once you’ve wound up the business, you’ll file your Articles of Dissolution (or Certificate of Dissolution) to officially close your business with the state.

Other Names for Winding Up

Winding up the business can also be referred to as:

• Liquidation
• Closing the books
• Going out of business
• Shutting down
• Folding
• Winding down

No matter what you call it, winding up has its benefits. You’ll officially close the business and attend to all the loose ends. If you miss winding up, the disadvantages include owing taxes, paying late fees, and being sued by shareholders or creditors who didn’t get their share.

Winding Up Examples

Winding up can be compulsory or voluntary. Compulsory winding up occurs when a court orders the business to close. This might happen if you’re behind on your taxes or other legal obligations. If things aren’t going well for your company, the owners can vote to close and begin a voluntary winding up. Here are some well-known companies that chose to wind up:

• Payless
• Circuit City
• RadioShack
• Borders Group
• Blockbuster

These companies voted to wind up after years of deep financial distress, but you don’t have to wait until things are dire before winding up your business.

Summary

This page explained winding up and its definition, including selling off the business assets and paying off creditors. After you’ve completed winding up the business affairs, you can close your business without worrying about any lingering obligations.