A limited partnership (LP) is a business entity owned by two or more individuals, comprised of both general and limited partners. The general partners manage the organization and are liable both for the actions of the other partners taken in the course of business and for the partnership's debts and obligations. Limited partners, on the other hand, do not participate in the business and bear liability for neither the other partners' activities nor the partnership's debts and obligations. As the name implies, a limited partner's liability is limited to the amount of her investment in the organization. An LP's partnership agreement and the laws of the state where the LP organized control how an LP may dissolve.
When a Limited Partnership Can Dissolve
An LP can dissolve under several circumstances. If the LP's partnership agreement sets out an end date, the partners should dissolve the LP as of that date. Similarly, if the partnership agreement specifies that the LP should dissolve upon the happening of a particular event, the LP should dissolve when that event occurs. If an LP is left with no more general partners, it must dissolve. On occasion, the state will dissolve an LP if the company fails to make required filings or pay mandatory fees and taxes for a period of time. Finally, the partners can dissolve an LP by following procedures set forth in the partnership agreement or state law, typically by a partnership vote. In most states, all of the general partners and a majority of the limited partners must vote for dissolution unless the partnership agreement says otherwise.
Steps for Dissolving a Limited Partnership
Although LP law varies by state, the basic steps for dissolving an LP are generally similar everywhere.
- Have the partnership meet and take a vote to dissolve, according to the procedures in the partnership agreement or state law. Record the vote in the meeting minutes and file the minutes with the partnership's business records.
- File a certificate of dissolution, also called a certificate of cancellation. The LP should file this document with the same state office where it filed its partnership certificate—usually the Secretary of State's office or the Department of Revenue.
- Wind up all remaining partnership business. The LP can appoint a general partner to handle the winding up. If there are no general partners, a limited partner can petition the court to supervise the process or seek the appointment of a trustee.
- Give notice to all creditors and customers that the LP is ceasing operations. Some states require a particular form of notice to creditors, and some require the LP to print notice in the newspaper. Cancel any business licenses the LP may have.
- Pay off all the LP's debts and settle its obligations. Liquidate the assets and, after satisfying all obligations, distribute what remains to the partners according to their investments.
- File final tax returns with the state and the Internal Revenue Service (IRS). The IRS website has a handy Closing a Business Checklist that lists many of the tax forms your LP may need to file depending on its circumstances.
Although the general process of dissolving an LP is similar across the states, it is important that you consult the laws of your particular state as well as your LP's partnership agreement. LegalZoom can assist with the dissolution process to ensure everything is done correctly.
This portion of the site is for informational purposes only. The content is not legal advice. The statements and opinions are the expression of author, not LegalZoom, and have not been evaluated by LegalZoom for accuracy, completeness, or changes in the law.