Legal Question in Business Law in California

Re: Convert Partnership to Sole Proprietorship

Here are some of the steps. This is not necessarily an exhaustive list:

1. Have a written agreement between you covering all aspects of your understanding, but most important, the amount and timing of payment for the retiring partner's capital investment including accrued profits and any other sums; also, the date on which the partnership will be deemed to dissolve.

2. Determine who will wind up partnership affairs (as distinguished from affairs of the on-going sole proprietorship), and when that will be completed.

3. Prepare closing financial statements for the partnership, then prepare and file its final tax returns including K-1 forms for each of you.

4. Notify ALL potentially-interested parties, including customers, suppliers, creditors, landlords, employees, etc.

5. Don't distribute all partnership funds until you're sure all its bills have been paid.

6. Apply for and obtain, if necessary, a new employer ID number for the proprietorship.

7. Obtain a new business license.

8. File and publish notice of discontinuance of the fictitious business name by the partnership and new notices as appropriate.

9. File a form GP-4 (Statement of Dissolution) with the California Secretary of State.

10. Consult with your bookkeeper or accountant at all stages.

11. Read (at least) the following sections of the Corporations Code, which deal with dissociation and its effects: 16601, 16603, and 16801 to 16807.

12. Re-read your partnership agreement for any provisions it may contain for dissociation, wind-up, dissolution or termination.

Consider retaining a lawyer to assist, especially if the amount of money or other assets to be paid to creditors and/or the retiring partner is significant, e.g. over $50,000 or perhaps less if there are "issues" such as overdue or disputed debts, real estate, leases, or employees.

Re: Convert Partnership to Sole Proprietorship

The forms you will need, in CA are located at:

http://www.thelawshack.com/CASecofState.html