Like any business venture, general and limited partners may be faced with how to dissolve a limited partnership at some point in time. A number of reasons may result in the dissolution of a limited partnership. Perhaps the partners want to pursue other business opportunities or have decided that the economic climate does not support continuing the limited partnership. General partners may die or decide to retire with no one willing or able to continue to operate the limited partnership. Whatever the reason, there are certain issues that need to be navigated before terminating the limited partnership. State laws govern limited partnerships so there will be differences on a state-by-state basis. Yet here are some key steps to consider when dissolving a limited partnership.
In forming the limited partnership, the general and limited partners created a partnership agreement to identify partner roles, responsibilities, and financial contributions. That partnership document should also spell out the bases and procedures for initiating the dissolution process. Review that agreement to determine if a triggering event, such as a retirement or majority vote of the partners to terminate the business, will authorize the start of the dissolution process. The agreement may spell out the obligations of the general partners in winding down the business enterprise, including the closure of business bank accounts, the payment of debts or other liabilities, the termination of business licenses, and the distribution of any remaining assets among the partners in compliance with state laws. In some instances, your state may involuntarily dissolve your limited partnership for failing to comply with state statutes and regulations so a different process, other than the one spelled out in the agreement, may be followed.
The limited partnership may have entered into agreements with a wide range of third parties, including creditors, customers, vendors, suppliers, lessors, employees, and independent contractors. The limited partnership should notify applicable third parties about their plans to dissolve the business organization. These contracts may specify notice and termination requirements that must be followed as well as identify any remaining obligations owed to these third parties. This review may help guide the general partners in closing down the business and setting aside adequate resources for complying with outstanding debt or contract obligations.
Typically, a state governmental body is authorized to oversee business entities and their compliance with reporting and other legal obligations. You should contact your secretary of state or other supervisory agency to determine the proper steps, required forms, and associated fees for terminating your limited partnership. The form for dissolving the limited partnership is sometimes called a "certificate of cancellation" or a "statement of dissolution." This certificate usually seeks information about the names and addresses of the general and limited partners in the limited partnership, when the limited partnership was formed, and the planned effective date of the dissolution. Once properly terminated, partners can prevent others from binding the limited partnership to new obligations or liabilities after dissolution. Today many state offices make this process easier by providing online access to this required paperwork.
It is common for state laws to require that a limited partnership publish a formal notice of its plans to dissolve the business entity in area newspapers. By properly notifying the public of the planned dissolution, any claimed creditors or other third parties are given a limited time period to step forward with any valid claims against the limited partnership. This notice and publication process may help avoid unexpected future lawsuits and other liability risks at a later date.