Liquidating distribution detailed example

02 Jul

A major difference between partnerships and S corpo­rations involves the treatment of distributions of ap­preciated property.

Although both S corporations and partnerships are now tax-favored entities, there are differences between the two.

They affect in some circumstances the way in which the proceeds received by a shareholder on the liquidation of a company will be taxed. Any individual receiving a distribution on a winding-up of a company. At present, the general rule is that (unless certain anti-avoidance legislation is invoked by HMRC) any distribution in a winding-up is charged to Capital Gains Tax (“CGT”) in the hands of an individual.

The rate of tax may be as low as 10% (if Entrepreneurs’ Relief is available) and will be a maximum of 28%.

Sometimes partnerships will have enough cash to pay off their liabilities, but in bankruptcy situations partnerships most often don't.

If there any assets remaining after all the liabilities are paid off, these assets are distributed to the partners based on their capital accounts.