Liquidation Definition

Definition
Liquidation is when the assets of a business are sold in order to generate cash. This cash is used to pay off debt and any funds remaining can be retained by the business owner.

Expanded Definition
When a business closes either by choice or due to bankruptcy, assets remaining can be sold in order to generate cash. The process of selling these assets is referred to as liquidation. The cash received from liquidation can be used to pay the liabilities of the business. In the case of bankruptcy, there may not be enough cash available to pay everything. If funds remain after paying the debt, the business owner can keep the remaining money or distribute to shareholders.

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