Dissolving a Business Partnership
Originally published February 10, 2013, at Of Interest to Entrepreneurs and Startups.
A business partnership is very easy to create and can sometimes be created by two or more individuals by merely going into business together But suppose the business of the partnership business is not doing well or the partnership was only created for a specific purpose or for a limited period of time. How do you dissolve a partnership?
Generally, the first step is to determine what was agreed upon between the partners. If there is a partnership agreement, even if it is not in writing and is just a “hand-shake” agreement, the terms of the agreement must be determined first. If the partnership agreement provides for a procedure to dissolve the partnership, those procedures must be followed if they are not in conflict with applicable law. If there is no agreement, or the agreement does not address dissolution completely, then applicable law must be followed.
Under California law the partners generally a majority in interest of the partners must approve dissolution. There may be a problem with partners who have dissociated (resigned) from the partnership prior to the dissolution vote. In some cases such dissociated partners may have a right to vote on whether the partnership should be dissolved or not.
If the partnership was formed for a specific period of time or for a specific purpose, the process is a bit different. All the partners must agree on dissolution. Otherwise, once the time period for the partnership’s existence has expired, or the purpose for which the partnership was created has been fulfilled, the partnership is deemed dissolved. If the partners want to continue the partnership when it was formed for a specific time period or purpose, they can do so on the approval of a majority in interest of the partners.
These are general points to consider in dissolving a partnership and this is not a comprehensive discussion. Other issues to consider, for example, include the paying of creditors and the liability of individual partners for the partnership debt (there are differences between general partners and limited partners).
This discussion is not legal advice, a solicitation of you as a client, nor the engaging in the practice of law in any jurisdiction. This discussion is merely for information/education and should not be relied upon for legal advice by anyone because the facts discussed may be different from your own situation. If you need legal advice, consult a qualified attorney.