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Brian R. Katz Nov. 11, 2020

Involved in a business partnership in California and things have suddenly begun to unravel? The venture may be facing financial challenges, the partners may disagree with one another about ongoing or future business operations, or one partner may simply want to move on for personal reasons. Whatever the cause, you can’t just walk away from the business without taking the required legal steps.

Why? There may be debts to be resolved, assets to be divided, and requirements that must be met under the Uniform Partnership Act that governs partnerships in the state. In short, there are important legal considerations to be made and liability-reducing steps to be followed in dissolving a partnership.

For years, Katz Business Law has been helping individuals successfully restructure or dissolve their business partnerships. I am Attorney Brian R. Katz and with more than four decades of experience, I have the knowledge and resources you need to properly navigate the often complex business world. Contact me today for a free consultation. I represent clients in Granite Bay, California, and the surrounding areas of Folsom, Roseville, Rocklin, and Auburn.

Steps in Forming and Dissolving a Partnership

A partnership ideally should begin with a written partnership agreement which sets forth the requirements for dissolving the relationship if one or more parties decide it’s time for that step. If not, the state’s Uniform Partnership Act governs your business.

The written agreement most likely will call for a vote for matters such as dissolution, in which case a majority vote would generally be needed, or a half vote if only two partners are involved.

If the partners can’t agree on whether to dissolve, the agreement should include a provision for the remaining partner or partners to buy the others out. If not, an independent mediator can be called in. Failing that, the last recourse is going to court, which can be costly and time-consuming.

Potential Issues of Not Dissolving a Partnership Properly

Dissolving a partnership is not as easy as just walking away and shutting the door, or leaving the business in the hands of the remaining partner or partners. If not done properly, there can be endless disputes among the partners as well as any legal liability with whom you’ve been doing business, including creditors, suppliers, and even customers.

Though not required by California law, to protect yourself you should serve, file, and record a written notice of Partnership Dissolution to all persons and companies that your business is dissolving. This can prevent further liability should one partner make a deal with someone after everyone agrees to dissolve.

To complete the process, the following steps are also essential:

  • Paying off all debts

  • Completing any partnership ventures still in progress

  • Selling off assets as necessary

  • Distributing assets to the partners after clearing up the debts

California’s Uniform Partnership Act requires that debts be paid before any other distributions are made. After that, the partners are entitled to receive back their original capital contributions (providing the assets are available). Finally, if any assets remain, those can be distributed among the partners.

Settling with the State and Tax Authorities

California does not require a partnership to submit any particular form upon dissolution unless, in the beginning, the partners filed Form GP-1, Statement of Partnership Authority, with the Secretary of State (SOS). In that case, a Statement of Dissolution must be submitted. This will serve as a notice to parties outside the partnership of the dissolution of the enterprise, limiting the partners’ legal liability.

If your partnership has a Seller’s Permit for collecting sales tax, a Form BOE-65, Notice of Close-Out, must be filed with the State Board of Equalization (BOE). Additionally, a final return must be filed and all taxes due paid. With the Internal Revenue Service (IRS), a Form 1065 has to be filed. If the business terminates before the end of the tax year, the return is due by the 15th day of the fourth month after closure.

How Katz Business Law Can Help You

Dissolving a business partnership requires that specific, sometimes complex, steps be taken. Where procedures are not properly followed, you may risk unwanted and costly liability. Having the assistance of an experienced business law attorney is crucial.

At Katz Business Law, I have been helping people like you formulate legal strategies to achieve their goals for many years. Whether forming or ending a partnership, I will walk you through the process of the restructuring or dissolution of your business. I proudly help business owners in Granite Bay, Folsom, Roseville, Rocklin, and Auburn, California. Call me today for a free consultation.