Dissolving A Business Partnership
Similar to how forming a business entity requires specific steps based on the chosen legal entity, the same applies to dissolve a partnership. Given that there are various forms of legal entities, the dissolution of a partnership has its own distinct process that must be followed. In order to ensure that the proper steps have been taken (and that they have been in the best interests of the parties involved), it is strongly advised to consult with an attorney.
The first step in the process is to review the business’ partnership agreement. This agreement would have been written when the business first formed, and it should outline key provisions for a possible dissolution with regards to the division of assets, paying off of debts, and more. If it was well-written, the agreement will act as a blueprint for exactly how the dissolution process will proceed. However, given that a partnership agreement is not required in California, the businesses that choose not to have one must dissolve their partnership according to the guidelines set by the California Revised Uniform Partnership Act (RUPA). Following the review of either the partnership agreement or the RUPA, the partners must vote on the dissolution. A resolution to dissolve must be passed by either the majority of the partners or all of them. There may possibly be provisions in the partnership agreement that allow for an alternative mechanism for dissolution; however, if enough partners dissent and mediation fails, the partners must go to court in order to dissolve the business.
Furthermore, the business must sell a set amount of its assets, pay its debts, and then proceed to distribute anything that is left to the appropriate partners. Given that creditors must be paid back, it is important to notify them, and any other parties related to your business, once you have decided to dissolve. Beyond creditors, the business must also file a Statement of Dissolution with the Secretary of State in California. This is a major step for many reasons, with the most notable being that this terminates the business’ liability.
Other steps involved in the dissolution process include filing with the California Franchise Tax Board, the IRS, and the Board of Equalization. This article is not a complete guide to partnership dissolution, as some businesses also require dissolution in other jurisdictions, mediation in case of dissent, public notice of dissolution, or the filing of other government forms given the nature of the business. Therefore, it is imperative to speak with an experienced attorney if your partnership is looking to dissolve.