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How Do I Get Out of a Partnership in California?

Getting into a partnership, like a marriage, is easy. Getting out, however, is also like a marriage and is at times quite challenging.

1. Review the Partnership Agreement First, if you have a Partnership Agreement, it may provide your options for exiting or dissolving the partnership. Revisit the Agreement and review your options. If you do not have a Partnership Agreement that outlines an exit or dissolution strategy, you and the remaining partners can try to work out the terms together or seek the help of a mediator. If the terms of the split cannot be resolved amicably, the Court can divide the partnership’s assets and liabilities. Absent a Partnership Agreement, general partnership law applies, as codified in Corporations Code §§ 16000 et seq. and Business & Professions Code.

2. Is a Buy-out an Option? If the partnership wants to continue without you, it may be interested in purchasing your interest. If there is a Partnership Agreement, the formula may already be established. If there is no set formula, the buy-out price may be based on the liquidated value of the partnership or the sale of the business as a going concern, whichever is greater. There is no set formula here.

3. Dissolution If an agreement on a buy-out cannot be reached, the business in many cases will have to be dissolved. This can be accomplished by agreement amongst the partners or by a provision in the Partnership Agreement. If there is no agreement or procedure set forth, Judicial Dissolution is likely. In California, the partnership must file a Statement of Dissolution with the Secretary of State. The partnership is then responsible for distributing or liquidating the partnership assets. It must also inform all known creditors, vendors, suppliers, and customers that the partnership is being dissolved. In addition, the partnership must publish notice of the dissolution in a paper “of general circulation” for twelve (12) consecutive days. After a partnership has been dissolved, no partner may transact on behalf of the partnership. In addition, unknown creditors will have 90 days to make any unknown debts known. Consult your CPA to address any tax issues.

4. Conclusion.  Again, check the written Partnership Agreement first if you have one. If not, your best bet is to try to work out an agreeable split amongst the partners. If a Judicial buy-out or dissolution is required, this will likely be costly and protracted