When the assets of a business are liquidated, it means they are converted into cash. This situation spells the end for the business, as with stock, equipment, property and other non-cash assets sold, there is no means left to trade.
But liquidation is not necessarily the result of a failed business. It can also be a sign that a successful business has served its purpose and the owner, partners and/or shareholders have decided to move on.
Therefore liquidations can be divided into two categories: voluntary or involuntary.
Regardless of which category applies, there are two terms to be aware of: solvent and insolvent. A company that is insolvent does not have sufficient assets to pay its debts when they fall due, while a solvent business does.