How to Liquidate a General Partnership

By Elizabeth Rayne

When a general partnership closes its doors for business, it must liquidate the partnership. Liquidation is a process of selling the business's assets, paying outstanding debts and dividing the remaining assets among the partners. In most states, a general partnership is formed whenever two or more individuals decide to carry on a business. There are no filing requirements for registering a partnership. Unlike a limited liability partnership, owners of a general partnership remain personally liable for the business's debts. Despite the informality of the business entity, partnerships should carefully follow the steps for dissolution to ensure the partners are not personally liable for any remaining debts or taxes.

Step 1

Review the partnership agreement. If there is one in place, the partnership agreement may provide when and how the partnership will be dissolved, and how the income will be distributed among the members. It will be the guiding document throughout the liquidation process.

Step 2

File dissolution documents with the state. If your partnership was doing business under a fictitious business name, file to cancel the business name. Some states may not require general partnerships to file dissolution documents, but you may still do so to put creditors and the government on notice of your dissolution. The specific forms and filing fees will vary by state.

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Step 3

Cancel licenses and permits. Contact the departments where the partnership acquired any permits or professional licenses, such as the department of health or agriculture. Canceling licenses and permits will protect your finances and your professional reputation.

Step 4

Pay final paychecks to employees and issue final wage withholding documents. Ensure that paychecks are submitted to employees before or soon after their last day of work, in compliance with your state's laws. Issue form W-2 to each employee to report wages withheld.

Step 5

Settle remaining debts. Notify all creditors and lenders of your intent to dissolve the partnership. If the partnership does not have enough money to pay the debts, first sell the partnership's assets to generate income. If after selling assets, the partnership still has debt, the partners are personally liable for the debt. This means the debt will be divided among the partners pursuant to the partnership agreement, and each partner is personally responsible for paying their portion.

Step 6

Sell any remaining partnership assets and distribute income to partners. How the income is divided will be determined by the partnership agreement. If there is not an agreement in place, distribute the income evenly among the partners.

Step 7

File state and federal income tax returns. The state tax return will differ depending on which state your business is located in. File Form 1065 with the IRS to report partnership income, and distribute Schedule K-1 to each partner, listing their share of the income.

Step 8

Close all partnership business accounts and credit cards.

Step 9

Maintain business records. The state or the IRS may request financial, tax or employment records. Keep the records in a safe place for three to seven years after dissolution.

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Steps for Dissolving a Partnership in South Carolina
 

References

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South Carolina LLP Laws

South Carolina law regulates how a Limited Liability Partnership, or LLP, may form, operate, and ultimately dissolve. Unlike limited partnerships or general partnerships where one or more partners are personally liable for the debts of the business, an LLP limits liability for all partners. Each partner may participate in the management of the business, and receive a portion of the profits.

Documents Required to Dissolve A California Limited Partnership

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.

General Partnership Laws & Regulations

A partnership is a form of business entity owned by more than one partner. The key consideration is that the business is conducted with the aim of making a profit. Most partners enter into a formal written partnership agreement, setting out their rights and obligations, but a partnership can operate effectively on the basis of a handshake. Each state has its own laws relating to partnerships but the general principles remain the same across the United States.

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