Business partners may decide to end the partnership for a range of reasons. It could be that one of the partners wants to retire, has died, or there have been irresolvable disputes. It may also be that the partners wish to pursue their passions in different fields.
Whichever the reason for dissolving a business partnership in California, you must follow the California Revised Uniform Partnership Act (RUPA) rules. And although the process may seem straightforward, it will help to hire a business law lawyer to ensure compliance. Here is a step-by-step guide on the same.
Review Your Partnership Agreement
This is the best time to review your business partnership agreement if you have one. Although this is not mandatory in California, a partnership agreement helps to outline your business ideas, plans, and decisions.
The agreement should highlight the processes to follow if you reach a point of dissolution. If you don’t have one, you should follow the standard rules set by RUPA.
Take the Majority Votes
Partnership agreements indicate provisions on how to dissolve the partnership and the steps to be followed. In most cases, the regulations require the consent of the majority, if not all partners. In this case, you need to vote. And record the votes to determine if the majority of the partners are in for dissolution.
If only a few partners agree, that means that the dissolution is based on conflict. And according to partnership agreement provisions, you have to think of a solution. For instance, the majority, who in this case are opposing the dissolution, may buy out the partners who want dissolution. Or, you could go to court and let the judge decide.
If you are following Revised Uniform Partnership Agreement Act (RUPA) rules, the state allows the willing partners to dissolve at the written will of half the partners, inclusive of those that let the partnership within 90 days. Then the rest who are not for the dissolution can continue with the business.
Once you have agreed on dissolution, it is time to wind up by completing any pending tasks, selling assets, distributing the remaining assets among partners, and paying off debts.
File for Dissolution
Filing for a dissolution form is not mandatory in California. Nonetheless, if you had filed a partnership form when you formed the partnership, you need to file a statement of dissolution.
Issue Dissolution Notification
Notify all the concerned parties about the partnership dissolution. These include creditors, investors, customers, and supplies. You may issue a written notice or publish it in the local paper.
Resolve Pending Tax Issues
You cannot conclude the partnership dissolution with pending tax issues. You have to file tax returns and pay off any due taxes under those returns. Follow the federal rules, which state that if a partnership is terminated before the end of a tax year, their final federal return will be due by the 15th day of the fourth month after the termination date.
If your business has a seller’s permit for collecting sales tax, you must notify the state that you are terminating the partnership.
Handle Out-of-State Registrations
This step applies if your partnership is registered to do business in other states. Ensure to file separate dissolution forms for each state. Otherwise, you remain liable for taxes in the other states.
Visit our website to create a free CA partnership agreement for compliance and easy dissolution. You may also download a general partnership agreement here.