Breaking up is hard to do. However, ending a business partnership doesn’t have to be. Known as “dissolution,” the process of breaking up a business partnership includes several essential steps. Whether someone is in a straightforward, two-person general partnership or a larger partnership governed by a detailed agreement, these basic steps can help create a solid dissolution plan.
Check the partnership agreement (if you have one)
If partners created a partnership agreement early on, the agreement would likely outline how to go about dissolving the partnership. Check the language of the agreement to ensure there are no surprises. If your business does not have a written agreement, dissolution follows the procedures in the Uniform Partnership Act.
Hold a vote
Most dissolution provisions require consent from the majority of a business’s partners. Holding a vote can clarify everyone’s position before moving forward with ending the partnership. If there is a dispute, each partner may need to engage their own attorney to help work things out.
Pay outstanding debts
In many circles, the process of paying the business’s remaining debts and completing any remaining work is called “winding up.” Under California’s Uniform Partnership Act, partnerships must pay out any remaining debts before distributing assets to partners.
Notify the state (if there are previous filings)
General partnerships in California are not required to file paperwork with the state, but many do in the form of a Statement of Partnership Authority. If this is true of your partnership, you will also need to file a Statement of Dissolution.
It also helps to notify customers, creditors, and other interested parties of the dissolution. In most cases, this isn’t required, but it can aid in avoiding bumps in the road later.