I Fell into the “Unintended Partnership” Trap – How do I Climb Out?

Earlier this year, I wrote about how business founders who agree to split earnings from their venture can find that they have unintentionally created a general partnership (Beware the Unintended Partnership). The problem: Any partner can subject all of the partners to unlimited personal liability for partnership obligations!

This post provides an overview of how an unintended, or otherwise undesirable, California general partnership can be terminated.

Half or more of the partners can decide to wind up the business of the partnership and dissolve it (California Corporations Code Section 16801(1)).

At that point, the partnership will continue only for the purpose of winding up its business, and its existence will terminate once the winding up is completed (Corporations Code Section 16802(a)).

Because a general partnership is not required to register with the Secretary of State when the partnership is formed, there is no requirement to file any document with the Secretary of State at the time of dissolution. (This is in contrast to dissolving a corporation or limited liability company, for which filings are required – see How to Kill Your Company when that’s the Only Choice).

However, after dissolution, one of the partners may file a Statement of Dissolution to put third parties on notice that the partnership has been dissolved (Corporations Code Section 16805(a)).

Corporations Code Sections 16806 and 16807 specify partners’ respective responsibilities for paying partnership debts and rights to any remaining assets.

Dana H. Shultz, Attorney at Law +1 510-547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.