Dissolving a Partnership in California

 

A partnership is just one of the many forms a California business can take. But what do you do when you and your partners decide to close up shop and dissolve the partnership? Read on for guidance about winding up a California general partnership.

What is a Partnership?

Under California’s version of the Uniform Partnership Act, a partnership is an association of two or more persons as co-owners to carry on a business for profit. A typical partnership is “at-will,” meaning that the partners have not agreed to remain partners for a specific term or until a particular task is completed. As the Governor’s Office of Business and Economic Development points out, a partnership is not taxed as a separate entity.  Rather, the partnership’s profits are passed on to the partners, who then report their share of the business’s profits and losses on their personal income tax forms. Moreover, unlike a corporation, a partnership does not shield its partners from the company’s liabilities. Each partner is jointly and severally liable for all the legal and financial obligations of the business.

Steps to Take in Dissolving a California Partnership

  1. Review your partnership agreement. The agreement should specify the dissolution procedure, which you should then follow. For instance, the agreement may specify that all the partners must agree to dissolve the business. In this case, it may be advisable to take a vote of all the partners and record it. Note that, in the event not all partners agree to the dissolution, court intervention may be required to wind up the business satisfactorily.  The following steps assume all partners are in agreement.
  2. Review all of the business’s contracts, leases, loan agreements, and other obligations to see how a dissolution will affect them. You may be locked into certain contracts regardless of the partnership’s status. (See SBA.gov.)
  3. Inform all your clients, customers, vendors, suppliers, and creditors of the dissolution.
  4. Pay all the partnership’s debts and divide its assets among the partners. All debts must be paid before any assets can be distributed.
  5. If your partnership has filed a Statement of Partnership with the Secretary of State’s Office, you must file a Statement of Dissolution with that office as well. (See https://business.ca.gov/StartaBusiness/DefiningaBusiness/GeneralPartnership.aspx.) This removes the company as an active entity for tax purposes from the Secretary of State’s records.
  6. File a final tax return with the California State Franchise Tax Board and pay all final taxes that are due.

According to the statute, once the partnership is dissolved, it continues only for as long as necessary to wind up any remaining affairs.  Thereafter, the partnership is terminated.

Consult a California Business Lawyer

Whether you are creating or winding up a business, counsel from an experienced lawyer familiar with the ins and outs of California’s business law can be invaluable.  The skilled business lawyers of The De Cardenas Law Group can guide your company from choosing its legal structure to concluding its affairs.  Contact us for a consultation today.