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Why You Need To Formally Dissolve A Partnership In Laguna Beach

Updated: Dec 27, 2022

A Quick Guide To Business Partnership Dissolution In California

Partnerships are dissolved for a lot of reasons. It could be because the business is failing or your relationship with your business partners has gone sour. It could also be totally harmless, such as leaving for personal reasons.

Whatever the reason, you can't just up and leave the company without following the necessary legal processes. So here's a quick guide to why you need to formally dissolve business partnerships, as often handled by our Laguna Beach Business Law Attorneys in California.

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Why Do You Need To Formally Dissolve Business Partnerships?

Businesses entail assets. Debts may need to be settled, assets distributed, and requirements under the Uniform Partnership Act, which governs partnerships in the state, may need to be met. You can't just decide to leave, take your assets with you, and never talk to your former business partners again.

In short, when dissolving a partnership, there are essential legal considerations to make and liability-reducing procedures to take.

How Do You Dissolve A Business Partnership In California?

Ideally, a partnership should start with a written partnership agreement that spells out the conditions for ending the relationship if one or more parties decide it's time. If not, then you should follow the state's Uniform Partnership Act.

For matters such as dissolution, the written agreement will almost always require a vote, often requiring a majority vote or a half vote if only two partners are participating.

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If the partners cannot agree on whether or not to dissolve the partnership, the agreement should include a mechanism allowing the remaining partner or partners to buy out the others. If it doesn't work, an independent mediator can be enlisted. However, if that fails, the only option is to go to court, which may be costly and time-consuming.

Ironing out all the details of your partnership (and yes, up until its dissolution) is one of the best ways to avoid financial and legal complications in the future. So, before getting into any kind of partnership agreement, make sure to have a Laguna Beach Business Attorney look over your contracts and other documents.

Potential Consequences of Failure to Properly Dissolve a Partnership

Even though it is not required by California law, you should serve, file, and record a written notice of partnership dissolution to all affected by the dissolution. If one partner makes a bargain with someone after everyone agrees to disband, this can protect them from future obligations.

Again, since there's a lot at stake, you want to make sure things are sorted out before leaving. You don't want to face future consequences, including having to deal with problems on a new business venture.

The following steps are also necessary to complete the process:

  • Getting rid of all debts

  • Completing any joint ventures that are still in the works

  • Sell assets that need to be sold

  • Distribution of assets after selling them

The Uniform Partnership Act of California stipulates that debts must be paid before issuing any future distributions. The partners are then entitled to receive their original capital contributions back (provided the available assets). Finally, any remaining assets can be divided among the partners.

That said, you can consult with a Laguna Beach Business Lawyer to ensure you don't miss anything.

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Government, Tax, And Other Documents

A partnership in California is not required to file any specific forms upon dissolution unless the partners file Form GP-1, Statement of Partnership Authority, with the Secretary of State at the outset (SOS). A Statement of Dissolution must be filed in this case. This will act as notification of the partnership's dissolution to those outside the partnership, reducing the partners' legal culpability.

A Form BOE-65, Notice of Close-Out, must be filed with the State Board of Equalization if your partnership has a Seller's Permit for collecting sales tax (BOE). A final return must also be filed, and all taxes owed must be paid. In addition, Form 1065 must be filed with the Internal Revenue Service (IRS). If a business closes before the end of the tax year, the return must be filed by the 15th day of the fourth month following the year's end.

If you don't know which documents you need and don't need to sort out, call a Laguna Beach Business Litigation Attorney to help you. A lawyer will know what you need at present and make sure you don't have to deal with other problems in the future.

Find A California Business Lawyer in Laguna Beach is a California Bar Association Certified Lawyer Referral Service that can refer you to a Business Litigation Attorney best fit to handle your case. In addition, you can contact us through our 24/7 Live Chat (or complete our submission form) for a free initial case review.


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