Review the Partnership Agreement
A well-drafted partnership agreement should outline procedures and steps partners must take to end a business partnership. Although California does not require a written partnership agreement, having a written agreement one will make it much easier to end the partnership.
Most partnership agreements require members to take a vote to end a business partnership. Usually, there must be majority agreement of the partners to end the partnership. A meeting is held of the partnership and formal minutes written to reflect the partners’ discussions. The meeting minutes should reflect the outcome of the vote to dissolve the partnership. If members are in disagreement regarding the termination of the business partnership, you should check the partnership agreement to see if there are instructions on how to terminate the partnership if all the partners do not agree. If the agreement does not provide instructions, it may be necessary to file a lawsuit and get a court order to terminate the business partnership.
Wind Up the Business Assets & Debts
A good partnership agreement will always include two key things – 1) how the partnership will pay all outstanding debts and taxes upon dissolution, and 2) how the partnership will distribute remaining partnership assets. This avoids conflicts when it comes to ending a business partnership.
Hold a meeting with the general partners to talk about partnership debts and taxes. Make a list of outstanding debts that the partnership must pay. Pay all income taxes owed to the federal and state government before paying remaining creditors (unless your partnership agreement states otherwise).
Keep in mind that the partnership should always pay all taxes and business debts before the partnership makes a final distribution to a partner. If you do not have a partnership agreement, California’s Uniform Partnership Act will control how the business is dissolved.
Complete State Forms
Next, to end a business partnership, you must file specific forms with the Secretary of State to terminate your partnership agreement. If your general partnership filed form, GP-1 Statement of Partnership Authority, with the Secretary of State when it first formed, then it should file Form GP-4, Statement of Dissolution upon dissolution. Filling this statement limits your liability as notice is provided that the partnership has ended. File a Statement of Dissolution only if GP-1 was filed with the state at formation.
Final Steps to End a Business Partnership
Lastly, you should notify clients and creditors of the partnership dissolution. Although California law does not require such notice, it’s a courtesy and good business practice.
Contact A People’s Choice for help completing the necessary documents to end a partnership in California. We can help you file the required form with the state and complete other documents as well. Call us today at 800-747-2780.
Was this article helpful? We would love to know your thoughts! If you found this article helpful, please check the LIKE button below. Your feedback helps us plan topics for future articles.