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General partnership becomes sole proprietership

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Chadc

Guest
What is the name of your state? California

Hello,

I have been involved in a general partnership for 2 years. We are doing OK financially. My partner has decided to call it quits and move back to the east coast. I plan on keeping the company running by myself and retaining all assetts.

I have been looking for stock legal agreements to end our partnership. All I find are partnership dissolution agreements. My situation seems to me to be a bit different because I am going to keep the company and not dissolve it.

Do I need a special agreement or do I need to dissolve the company and start over as an LLC or sole proprietorship.

I would also be interested in some advice about which kind of company I should be after this. I have heard it will be harder to get loans if I go the LLC route.

Any help would be greatly appreciated. Thanks in advance
 


gobonas99

Member
Chad - It's been awile, and I don't have my reference materials here with me, but I will do my best to answer you now and double check with I get home tonight....

You will not find a legal agreement to end your partnership, EXCEPT the partnership dissolution agreements.

You need to dissolve the company (on paper), and buy out your partner's interest in the company (ie if you were to close shop right now and sell everything off, after you paid off any debts/loans, what would you each get). (I'll have to double check the actual procedure when I get home).

THEN, you can re-establish yourself as either a sole-proprietorship or LLC.

Another option would be to find a new partner to buy out your current partner's interest. Or, you could possibly turn the partnership into an LLC BEFORE your partner leaves and then buy out his interest.

Again, I will have to double check this when I get home tonight, but I hope that helps for now. :)

-Christina
 
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Chadc

Guest
Thanks Christina. That helps a lot. I like the idea of converting to an LLC and buying out his half (he would actually have to give me his half because he owes the partnership quite a bit).

I am trying to get through this without spending much. I guess that is obvious though.
 
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Chadc

Guest
Any idea what would be involved if I dissolved the partnership and started anew by myself? I am guessing I would have to re-submit or purchase the following things:

Business license
Board of Equalization sellers permit

I am guessing that there won't be any legal problems with the name of the company as long as we cover that in our dissolution agreement.
 

gobonas99

Member
Okay...I will try to keep this as brief and understandable as possible.

Please note that these are GENERAL rules, and California may have additional requirements.

To terminate the partnership: There are 2 stages - dissolution (which occurs when a partner ceases to be associated with the partnership business) and winding up (which is the actual process of collecting and distributing the partnetship's assets). BOTH stages must take place before termination is complete.

To create an LLC: An LLC must be formed and operated in compliance with STATE law. Articles of organization must be filed with a state agency (ie secretary of state's office), and a charter much be issued by the state. Also, the business's name must include the words "limited liability company" or "LLC". An LLC offers the limited liability of a corporation (liability is limited to the amount of the member's capital contribution or investment), while offering the tax advantages of a partnership (the LLC is not taxed as an entity - profits are "passed through" the LLC and paid personally by the members). Also, member interests are freely transferable.


My suggestion is to create an LLC BEFORE your partner leaves. Have him pay back his loan to create a zero dollar interest (or a nominal amount), and then create the LLC. When he is ready to move, have him transfer his interest to you.

HOWEVER, I STRONGLY recommend that you consult a Business Law Attorney in your area before taking any action. As I mentioned earlier, these are general guidelines, and California may have more specific regulations. You will want to discuss this with an attorney to determine if this can be done in California and to ensure that all the regulations are followed.

While I can empathize with not wanting to spend a lot of money, it will be worth it in the end to consult a local attorney (and the cost is deductible as a business expense).

As far as whether you will have to re-submit/purchase the items you mentioned - I do not know....another reason to consult a local attorney.

I hope that I helped you somewhat and didn't confuse or bore you. If you have any other questions, just ask, and I will do my best to help you. :)

-Christina
 
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Chadc

Guest
Fantastic info. Thank you so much for the help. I think I am going to convert the business to an LLC before he leaves and follow the steps you stated below.
 

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