Companies don’t die, they liquidate, although most registered startups are referred to as corporate
entity but here are two common ways a company can wind up.
Most times winding up or liquidation of startup is caused as a result of declaring
“bankruptcy” but it has come of knowledge that most startup who claim to be
bankrupt might still get some financial resurrection from angel investors.
“winding up” doesn’t necessarily equate bankruptcy; sometimes it might be
because of a meager or amalgamation with another company, reconstruction of a
company (maybe diversifying) or it might just be a disposal of the company’s
entire business or selling it off like most tech startup do.
So this proof the points that inability to surmount liabilities or bankruptcy is not
the only reason startup wind up.
However, it is summed up that a company can wind up in two broad ways without
necessarily having extra debts to pay.
The first form of company liquidation is Voluntary Winding up. A voluntary
winding up is that which has undertaken consequently upon the contemplation of
directors or stakeholders/members of the company.
Voluntary winding up can either be “member/directors” voluntary wind up or
“creditor” voluntary winding up.
A member voluntary winding up, can begin anytime the directors or (majority of
the directors) resolve before the date of the resolution to wind up. The directors
will therefore make and file a statutory statement with the registrar of companies
(in the country). This however acknowledges that the company is solvent, and will
pay up agreed time (mostly 12 months) from the commencement of the winding
However the declaration of solvency must contain a statement if the company’s
assets and liabilities so the registrar would be certain the dissolving company will
pay her debts before winding up.
Creditor voluntary winding up does need a declaration of solvency, instead the
members (creditors) of the company appoints a liquidator who will liquidate the
company assets gradually.
The second form of liquidation is Compulsory Winding Up. This is the toughest
form of liquidation whereby the company is to strictly adhere to the procedure of
the court, here the liquidator may be nominated by the company but he/she is
actually appointed and must be confirmed by the court.
However the company’s official receiver can also act as acting liquidator pending
Here the duty of the liquidator is to collect debts due to the company, dispose the
company’s assets, and distribute proportional proceeds in satisfaction of the
claims of the creditors of the company and to apply any balance remaining
amongst the shareholders in accordance with their rights.
Here are the two ways a company can wind up, no matter the number of years it
has been existing, although this is for companies that risk borrowing to grow and
later end up in debt, bur “no risk taking entrepreneur will watch his/her business
empire crumble due to lack of money.” So everybody takes borrowing as the
saving grace. Out of borrowing, a company can fold up itself for whatever reason
he deem fit.