Legal Question in Business Law in California

Re: how to dismantle a general partnership

Do you have a written partnership agreement?

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Re: how to dismantle a general partnership

There are two aspects to ending a partnership, the 'dissolution' and the 'winding up.' They are intertwined to some extent, but dissolution refers to handling the relationship(s) among the partners. This should be done in accordance with the partnership agreement, if any; otherwise there is plenty of statutory and case law that defines the respective rights of the partners. See for example California Corporations Code section 16801 et seq.

Winding up has primarily to do with handling the external affairs of the partnership -- i.e., with its customers, suppliers, employees, banks, the taxing authorities, and the like. The partnership agreement should be consulted, of course, as to winding up, but essentially winding up must be done in accordance with general principles of law, such as meeting the claims and liabilities of outsiders before distributing money or property to partners, etc. See Corporations Code section 16807.

There is a form which should be filed with the Secretary of State, Form GP-4, entitled Statement of Dissolution.

You can probably download the form from the Sec. of State Web site, and the codes can be found on line or at most libraries.

If the partnership has significant assets, liabilities or has employees, you should consult an attorney and probably a tax advisor.

Re: how to dismantle a general partnership

Howdy:

My assumption from your question is that one partner wants to leave, and one partner wants to continue the business. If that's the case, you have several options.

Dissolution of the partnership should follow the partnership agreement. The remaining partner can run the business as either a sole proprietorship or some kind of business entity (Corp or LLC).

I always recommend a business entity over a sole proprietorship, if you are doing any serious business, if you have a shop or office open to the public, or if you deal in a product that could potentially have a products liability claim.

If you have a service type of business, than an LLC is a pretty good way to go.

If you have a hard product business, and you plan any serious growth requiring the accumulation of assets, especially retained earnings, than a corp would probably be better.

Notifying all the suppliers and creditors of the change is necessary. Also, running a notice of bulk sale in the local papers wouldn't hurt...but, since you know who you've been dealing with, it might not be necessary.

The important thing is to notify all creditors and suppliers of the change.