March 2009

Want to Dissolve a California Partnership, and Close Down Your Business?

All partnerships dissolve at some point, either because of a dispute, retirement, death, or other circumstance. A partnership may also need to be dissolved if the partners decide to incorporate their business, or form a limited liability company.

When operating as a general partnership in California, each of the partners are open to unlimited personal liability from the acts of each of the partners on behalf of the partnership. Under the California Revised Uniform Partnership Act (RUPA) each partner not only has an equal right to manage the business of the partnership, but also the ability to unilaterally bind the partnership. If a partner incurs a debt or signs a commitment on behalf of the partnership, each of the partners is personally responsible and liable for the debt, commitment, and decisions made. In other words, the act of one partner, with or without the consent of the other partner(s), will bind the other partners and the partnership itself. Because a partnership does not provide personal "limited liability protection," general partners are personally liable, jointly and severally, for partnership debts, obligations, and liabilities. Consequently, the debts and liabilities of the partnership are the debts and liabilities of each partner.

To eliminate this open ended potential for liability many partners will close down the business, either permanently or to form a California corporation or California limited liability company. Before incorporating a partnership, however, the partnership must begin the dissolution process.

To dissolve a California partnership, the partners must: (1) file a statement of dissolution, (2) inform all known creditors, vendors, suppliers, and customers that the partnership is being dissolved (and if applicable that a new entity is being formed); and (3) publish a specific legal notice in a paper of general circulation for 12 consecutive days. As soon as the above paperwork is properly filed and published the world is on notice that partnership is being dissolved, that the partners no longer have any authority to enter into binding contracts on behalf of the partnership, and unknown creditors will have 90 days to make any potentially unknown debts known.

To determine who must receive a written notice that the partnership is being dissolved, the partners should examine the partnership's accounting records, contracts, leases, and any loan agreements.

There are no special tax consequences when a general partnership dissolves unless the partnership owns property that has appreciated in value.

By having your partnership dissolution handled by a California business attorney you lessen the likelihood that creditors will come back at some point in the future and try and hold you personally responsible. Let the Law Office Of Melissa C. Marsh assist you in closing down your California general partnership, forming another legal entity like a California corporation or California LLC, or simply provide you with strategic business advice to grow your business. We can prepare your agreement to dissolve, a notice to known creditors for you to mail out, a notice to be published in a paper of general circulation for 12 consecutive days to unknown creditors, and prepare and file the Statement of Dissolution with the California Secretary of State.

Please call Melissa C. Marsh at 818-849-5206 or Send an E-mail if you have questions about dissolving a partnership, or converting to a corporation or limited liability company.

California business lawyer, Melissa C. Marsh, is based in Sherman Oaks and West Hollywood, and serves individuals and businesses throughout Los Angeles County, including: West Hollywood, Miracle Mile, Beverly Hills, Century City, Santa Monica, Burbank, North Hollywood, Valley Village, Toluca Lake, Studio City, Sherman Oaks, Van Nuys, Encino, and Woodland Hills.

© 2009 Melissa C. Marsh. All Rights Reserved.