How to Dissolve a Business Partnership in California
Business partnerships come to an end for a variety of reasons. Sometimes the conclusion of a partnership comes naturally after a project or goal has been fulfilled, for example. But other times, the ending and dissolution of a business is more complicated. Such can be true when partners disagree on operations and goals, when it’s decided that a partnership is no longer the best model for the business, or when an unexpected death of one of the partners occurs.
Regardless of the reason why your partnership is ending, in California, there are specific legal steps to follow. You’ll want to consult with an experienced attorney to stay compliant with California law and work towards the best outcome for you.
To make the dissolution of a business partnership as smooth and efficient a process as possible, it’s important to understand the necessary steps you’re about to go through. I have over four decades of experience in California business litigation and want to use my knowledge to your advantage. This article helps to outline those steps and provide a general guideline for fulfilling your obligations when dissolving a partnership in California.
How to Dissolve a California Business Partnership
In California, the legal standards and obligations for partnership dissolution are dictated by the California Revised Uniform Partnership Act (RUPA) — which strives to keep a business partnership entity intact, despite the disassociation of one or more of the partners. Read on to learn more about the steps to the dissolution process.
Review the Partnership Agreement
Though a written partnership agreement is not required in California, ideally, you and your partner(s) would have outlined key business plans and ideas from the company’s outset. Such inclusions may be: how decisions will be made, profits will be shared, and disputes will be resolved. This legal agreement should also include details on how old partners can be bought out, new partners can be admitted, and what steps should be taken if/when the partnership needs to be dissolved. If no partnership agreement exists at the time of dissolution, the rules of RUPA will apply.
Vote or Take Action to Dissolve
Assuming there is a partnership agreement with specific provisions on how to dissolve the business, those action steps should be followed. Most often, the dissolution provisions outlined in a legal agreement express a requirement for a majority of (if not all) partners to consent to such a major change to the business. This can be accomplished through an official vote by the remaining partners. If there is any conflict about this, it may be necessary to resolve the disagreement(s) in court.
Pay Remaining Debts & Distribute Remaining Assets
Also known as “winding up” the partnership, once dissolution has been agreed upon by the necessary parties, there are additional steps to be taken to close down the business as it was. These steps can include completing any works already in progress, selling agreed upon assets, paying remaining debts, and distributing any remaining assets to the partners.
File a Dissolution Form with the State
As previously mentioned, formal business partnership agreements are not necessary, but they are ideal. If your partnership filed an official agreement when first formed, filing a formal dissolution will make it clear that the partnership has ended; limiting your liability.
Notify Concerned Parties
It is very important to reach out to any parties who will be affected by such a major business change. California law recognizes creditors, customers, and suppliers as important parties to notify. The notification requirement can be fulfilled with individual written notices or by publicly publishing the information that can be accessed for a period of time.
Resolve Remaining Tax Issues
California requires any dissolving partnership to file one final federal tax return for the business partnership and pay any state taxes due with that return. If your partnership terminates before the end of your normal tax year, you have until the 15th day of the fourth month following termination to resolve these issues.
Complete Any Out-of-State Regulations
If your partnership was registered to do business in another state, you must file separate forms of dissolution for each of those states. Failure to do so will keep you liable for any annual fees and minimum business taxes in those states.
While the aforementioned steps may seem pretty straightforward, it is still wise to consult with a qualified business attorney who has the knowledge and skills to handle any complications that might arise during the dissolution of a partnership.
Reliable Business Litigation from Orange County to San Diego, California
Whether you’re currently working through a partnership dispute within your business or you already know that you wish to move forward with dissolving the partnership, be sure to keep this information in mind. Reach out to an attorney who can help you navigate through the dissolution of your business and advise you on the best possible outcomes. Contact William B. Hanley, Attorney At Law today for more information.