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The rules you must use to determine whether an organization is classified as a partnership changed for organizations formed after 1996.

A limited liability company (LLC) is an entity formed under state law by filing articles of organization as an LLC.

When determining whether a closely held corporation should be liquidated, the tax consequences to the shareholders should be considered.

A partnership starts with an agreement between two or more people who want to go into business together.

Either way, the partnership liquidation process is similar.

The partnership liquidation process starts with the partnership selling off all of its noncash assets at auction.

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

The company's bookkeeping record includes a total of the amount in this account adjusted for distributions the partner received, additional investments, and the partner's share of company losses.

Many times partners choose to dissolve and liquidate their partnerships to start new ventures.

Other times, partnerships go bankrupt and are forced to liquidate in order to pay off their creditors.

Next the partnership uses the cash it made from the sale of its assets and the remaining cash in its bank account to pay off all remaining liabilities.

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

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