How Do You Dissolve a Partnership in California?

Business partnerships can end for any number of reasons. Perhaps one partner wishes to retire or there has been a dispute, a death, or the simple desire to re-form the partnership as a different business entity. Regardless of the reason, ending your California partnership requires several steps. In California, partnership dissolution is dictated by the California Revised Uniform Partnership Act (RUPA). Although relatively straightforward, it’s wise to consult an experienced California business law attorney to ensure compliance and guarantee the best possible outcome for all those involved. Read ahead for general steps that must be taken to ensure all obligations are met when dissolving your partnership in California.

 

  • Consult your partnership agreement

First, you should consult your partnership agreement (if you have one). Although not required in California, a partnership agreement is a document that you and your partners prepare when you first form your partnership, or at some point in the duration of it. If there is one in place, then the agreement should dictate the process to follow in the event of a dissolution. If you don’t have one or your agreement does not state the process, then the dissolution is dictated by a standardized set of rules in the RUPA.

 

  • Vote or take action to dissolve

The next step is for all of the partners to engage in a vote or take action to dissolve the partnership as outlined by their agreement or by RUPA. When there is an agreement, the process usually involves consent of all or a majority of partners before the partnership can dissolve. In this case you would hold a vote and then record the results so that they can be included in your filing of dissolution with the state.

If only some partners agree or the dissolution itself is based on a disagreement, then there are still a few options. First, the partnership agreement might have a solution, such as the partners that oppose dissolution buying out the partner that wants to dissolve. Alternatively, you can bring in a mediator or go to court and have a judge decide.

If there is no agreement or the agreement fails to outline what happens in the event of a disagreement, then the partners can fall back on RUPA. Under RUPA, California allows at-will partnerships to dissolve at the express (or written) will of at least half the partners, including those who may have left the partnership within the preceding 90 days. If approved, those remaining can then continue the partnership without those that want to leave.

 

  • Winding up

Once dissolution has been agreed upon under the rules of your agreement or RUPA, then the winding up process begins. These steps generally include:

  • Completing any work in progress
  • Selling some or all assets
  • Paying off debts
  • Distributing remaining assets to partners

 

  • File the form of dissolution with the state

California does not require a partnership to file a form when they dissolve. However, many do file a statement of partnership when formed. When those have been filed, then a statement of dissolution should likewise be filed upon dissolution. This makes clear what happened and ultimately limits liability. But, you can’t file this unless you have already filed a statement of partnership authority.

 

  • Notify concerned parties

Next it is essential to notify all concerned parties when your partnership is dissolving. In California this includes creditors, clients, suppliers, and customers. Options of notification include written notices or publication in a local paper.

 

  • Tax issues

California requires you to file a final tax return for your partnership and pay any state taxes due with that return. Under federal rules, if your partnership terminates before the end of its normal tax year, the final federal return is due by 15th day of the fourth month following the termination date. Also, if your partnership has a seller’s permit, which is used to collect sales tax, then you must also inform the state in writing that you are ending your partnership.

 

  • Out-of-state registrations

Finally, if your partnership is registered or qualified to do business in other states then you have to file separate forms to terminate your right to conduct business in those states. If you don’t do this then you’ll continue to be liable for any annual reporting fees and minimum business taxes in those states.

As you can see, there are many things to consider when dissolving your partnership in California. As such, it is a very good idea to seek the help of an experienced California business attorney that can guide you through the process to assure compliance and limit risk. Integrated General Counsel is experienced at helping Californians dissolve their businesses the right way. Contact us today!

Share this on...Share on FacebookTweet about this on TwitterShare on LinkedInShare on Google+Email this to someone

Written by Integrated General Counsel

Our focus includes handling a variety of corporate matters and also includes litigation in state and federal courts. Our current practice includes providing transactional services and representing a variety of small and medium-sized companies as their outsourced general counsel.