Legal Question in Business Law in California

In most situations, even though the corporate powers are suspended, once the corporation is revived all acts are retroactively validated. The corporation should revive as quickly as possible. If the corporation cannot or will not revive, then it is basically as if an individual partner had died. The partnership dissolves and must be wound up, although the remaining partners will usually acquire the assets of the partnership and go forward as a new partnership with little fanfare.

Read the agreement, it is supposed to cover those issues. If it doesn't, then the general rule is that a partnership ends upon the loss of any partner. If that corp doesn't promptly resume, a new agreement will need to be negotiated.

I agree with Mr. McCormick's answer as far as it goes. I can offer a few more possibly-useful details.

There are two main reasons for corporate suspensions: failure to file Form SO-200, and failure to pay the franchise tax. The former is covered by Corporations Code section 2205; the latter primarily by sections 23301, 23301.5 and/or 23775 of the Revenue & Taxation Code. Anyone with an interest in the corporation can apply for a Certificate of Revivor.

While suspended, the corporation theoretically cannot perform any act requiring it to have any powers, except it may file to change its name or convert to a nonprofit. The preparation of an SO-200, payment of back taxes and application for revivor can be done by a majority of the remaining directors, by any officer, stockholder or creditor of the corporation, or by any other interested person. R&TC;23305.

Contracts entered into by the corporation during suspension are "voidable," but the corporation, when revivied, can seek relief from voidability by application to the Franchise Tax Board. However, while voidable, the contracts can only be voided through rescission ordered by a court. R&TC;23304.5.

Now, let's look at the partnership. If it had only one partner in addition to the suspended corporation, a question might arise as to whether the partnership dissolved, since a partnership must have at least two partners at all times. I do not know if the courts have addresses this issue. It would seem that the suspension of a next-to-last partner would NOT cause dissolution of the partnership, inasmuch as a "suspended" corporation does not cease to exist. It's sort of like a human partner in a coma. I could be wrong.

Finally, as to the partnership agreement. I'd say it remains in effect and must be observed, whether or not the partnership remains intact or whether the suspension caused a dissolution of the partnership, unless possibly it was signed for the corporation during the period of suspension, in which case the agreement is voidable, but valid until voided by a court.

Here's some important additional information.

Corporations Code section 16601, part of the Revised Uniform Partnership Act of 1994 ("RUPA"), says that a partner is dissociated from a partnership upon the occurrence of any of the following events: .......... " (4)(C) Within 90 days after the partnership notifies a corporate partner that it will be expelled because ........ its right to conduct business has been suspended by the jurisdiction of its incorporation [and] no reinstatement of ....... its right to conduct business." So, it appears the corporation remains a partner until 90 days after it is notified that it will be expelled.

Note that "withdrawal" of a partner is a form of (voluntary) dissociation; and that "dissociation" does not mean "dissolution" - they are different terms.

I also wanted to make it clear that the withdrawal or dissociation of a partner does not necessarily result in the dissolution of the partnership. Used to be that way, but not under the RUPA. See, e.g., Corporations Code section 16603. The other answers appear to be incorrect in that respect. The partnership survives the withdrawal or dissociation unless there is only one remaining "partner," in which case there is a dissolution because a partnership must, by definition, have two or more partners. Corporations Code section 16101(9). However, dissolution does not terminate the partnership; it merely forces it into a "winding up" mode; the partnership terminates when the winding up is complete. Corps. Code 16802(a).