The legal form of limited partnership offers businesses a blend of limited liability and organizational flexibility. A limited partnership has two categories of partners: general partners run the business and accept personal liability for the debts of the partnership, and limited partners provide capital and do not generally participate in the management of the business. Limited partner liability is limited to the amount of capital a limited partner invests in the business.
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Legal Regulation of Limited Partnerships
California limited partnerships must file formal registration documents with the secretary of state and all partners must also sign a formal partnership agreement. To obtain registration as a limited partnership, the business must have at least one limited partner and at least one general partner. The California Corporations Code incorporates the Uniform Limited Partnership Act of 2008 and sets out the legal provisions for the formation, operation and dissolution of limited partnerships in the state.
Events That Trigger Dissolution
Section 15908 of the California Corporations Code sets out the circumstances in which a limited partnership should be dissolved. These include when the partnership no longer has any general partners or all general partners and a majority of limited partners agree to dissolve the partnership. A court may also order dissolution if it determines it is no longer possible for the limited partnership to carry on its business in conformity with its partnership agreement.
Certificate of Cancellation
When a limited partnership dissolves, it must file a Certificate of Cancellation, Form LP-4/7, with the California Secretary of State. The form should include the 12-digit file number issued when the limited partnership was formed to ensure the correct entity is dissolved. The person completing the form must also insert the date when the initial Certificate of Limited Partnership was filed. All general partners must sign Form LP-4/7. You can complete and file the form online. Once Form LP-4/7 has been filed, the limited partnership is legally canceled and may no longer trade or conduct business.
Announcing the Dissolution
Although not essential under the law, it’s good practice to notify business associates of the dissolution of a limited partnership. The ex-partners can do this either by mailing individual clients or by putting a notice in a local newspaper or trade publication, depending on the nature of the business.
Although a limited partnership does not pay income tax to the IRS, it must file an information return each year and, upon dissolution, should file a final return confirming the date of dissolution. Limited partnerships registered in California must pay the Franchise Tax Board an annual minimum tax of $800. Once the Certificate of Cancellation has been filed with the secretary of state, the general partners should confirm the date of dissolution with the Franchise Tax Board.