California General Partnership Law

By Holly Cameron

The law defines a general partnership as an association of two or more persons who carry on business with the aim of making profit. The term “persons” generally includes not only individuals, but also other business entities. Most partners sign a formal partnership agreement, setting out their respective rights and obligations; however, this isn't necessary, as a partnership can operate on nothing more than a handshake. Title 2 of the California Corporations Code sets out the law relating to general partnerships in the state.

The law defines a general partnership as an association of two or more persons who carry on business with the aim of making profit. The term “persons” generally includes not only individuals, but also other business entities. Most partners sign a formal partnership agreement, setting out their respective rights and obligations; however, this isn't necessary, as a partnership can operate on nothing more than a handshake. Title 2 of the California Corporations Code sets out the law relating to general partnerships in the state.

Registration

California regulations do not require a general partnership to file documents with the Secretary of State. General partners may, if they choose, file a statement of partnership authority -- California Secretary of State Form GP-1 -- to specify the authority of each individual partner to enter into partnership transactions. The partnership should thereafter advise the Secretary of State regarding any changes to the structure of the partnership.

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Name

Many partnerships carry on business in the names of the individual partners. If a general partnership in California takes a different or “fictitious” name – often known as a DBA (i.e., "doing business as") – it must register that name with the county in which the principal place of business is located. Partners should check with the county for specific requirements.

Profits

Unless the partnership agreement provides otherwise, each partner has an equal responsibility to manage the business. Partners are entitled to take a share of the profits equal to their individual financial contribution to the business. Section 16401 of the California Corporations Code also states that each partner shares liability for the debts of the business in proportion to his share of the profits.

Dissolving the Partnership

Partners may dissolve their partnership and wind up the partnership's business at any time by mutual agreement. In addition, Section 16801 of the Corporations Code provides that if the partnership has been set up for a particular term, it shall dissolve after the expiration of that term. According to Section 16807, when a partnership is dissolved, its assets must be used to pay off any business debts. Once all debts have been satisfied, the partners can share the remainder in proportion to their rights to profits.

Tax

A general partnership is not a taxable entity; instead, each partner is liable to pay tax on his share of the partnership income. The IRS requires partnerships to file information returns on an annual basis setting out income, profits and losses. The California state tax authorities do not levy income tax on general partnerships; however, every partnership that engages in business or earns income from California, should file a California Form 565, Partnership Return of Income. General partnerships may be subject to other rules and regulations depending on the nature of their business.

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How to Change From a General Partnership to a Sole Proprietorship in CA

References

Related articles

How to Disband a Partnership

A partnership is the default form for businesses that are formed by two or more persons for profit. A partnership may be created by an oral or written agreement. Although a partnership may be straightforward to create, and may even be created inadvertently, disbanding a partnership may take some planning. A partner can always dissolve a partnership unilaterally, but doing so may have financial consequences. Once a partner expresses the intent to dissolve a partnership, the other partners may have to wind up the finances or, in some states, buy out the dissociating partner.

Importance of Partnership Agreement

A legal partnership is formed automatically whenever two or more parties -- either individuals or organizations -- agree to do business together and share profits and losses. Partnerships are governed by state law, and these laws vary somewhat from state to state. You don't need to register your partnership with the state government for partnership law to apply.

How to Set Up a Partnership in Tennessee

Like many other states, Tennessee does not require partnerships to officially register as a partnership. The agreement of two or more people to go into business together is sufficient to form a partnership, although having a written agreement in place is recommended. In Pennsylvania, the partnership may be required to file registration for a fictitious name. Under Tennessee state law, a general partnership has the option to voluntarily submit a Statement of Partnership authority with the Department of State, which must be filed by at least two partners. This statement describes which partners have the power to act on behalf of the partnership and gives other businesses greater confidence in the partnership.

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