In Finance, What Does "Wind up" Mean?

In financial circles, a "wind up" is a term that describes the processes and procedures used to settle the final accounts of a company or other organization that will shortly cease to exist. In effect, the process involves settling all outstanding vendor accounts, paying any wages and salaries owed to employees, disposing of company assets and settling shareholder accounts. The purpose of the wind up is to make sure that all the affairs of the company are settled in full before the entity shuts down.

As part of the process of closing a company, the structure of the wind up will often depend on the circumstance leading up to the decision to cease operations. In situations in which a corporation is sold to another entity and will be completely absorbed into the new owner’s operation, the wind up may involve identifying a specific point in time in which vendors are paid in full and employees receive their final pay from the old company before officially being on the payroll of the new owner. Shareholders may also be provided with a specific point in time in which shares in the old company are exchanged for shares in the new company, or those shares are purchased as part of the buyout, effectively settling the relationship with those investors.

When a company is choosing to cease operations entirely, the wind up will also include the necessity of managing the liquidation of all company assets. In this scenario, any facilities operated by the business are closed according to a specific schedule and the employees at each location receive their final pay, up to and including the final day of that location’s operation, along with any severance packages they are due. The assets associated with those locations are then sold, and the funds put toward settling the any outstanding debts. Once all the assets are sold and the proceeds collected, investors are paid off, tax liabilities are settled, and the owners receive any balance remaining from the shut down of the business.

Developing a viable wind up process involves identifying each task that must be completed before the business or organization can be considered truly closed. Organizing those tasks in a logical sequence can help expedite the process, since certain events must occur before being able to move on to other tasks. Preparing an escalation plan to aid in the wind up makes it possible to incrementally address and complete each task efficiently, which in turn means the company can wind up its affairs and cease to exist without a great deal of difficulty.