Partnerships are a standard structure in the business world. They offer many advantages, including shared responsibility, pooled resources, and combined expertise.
However, there may come a point in a business relationship where each partner wants to go their separate ways. In California, you can dissolve a partnership, but legal implications and steps are involved in the process.
Legal grounds for dissolution
Whether it’s because of a disagreement, a change in direction or a change in personal circumstances, ending a business partnership can be a complex process. The California Corporations Code states the circumstances under which a partnership may be dissolved, which include:
- Mutual agreement between the partners
- A partner’s withdrawal or death
- Completion of the partnership’s specific task or project
- Bankruptcy of either the partnership or a single partner
- Court judgment based on the misconduct of a partner or irreconcilable differences that make it impractical to continue the business partnership
The first step to dissolving your business partnership is to review your partnership agreement, which should outline the dissolution process. You will need to notify all creditors, customers and other stakeholders about your intent to dissolve.
The partnership’s assets will be used to settle any outstanding debts. A final tax form will need to be filed. Any remaining assets can be distributed among the partners per the partnership agreement.
All licenses, permits, and fictitious business names should be canceled. Finally, a Statement of Dissolution must be filed with the California Secretary of State’s office.
Dissolving a business partnership in California can be a complex process. It’s crucial to work with someone to ensure you’re following the correct procedures and to protect your interests.