Business Law

Withdrawal from a Partnership

If you are thinking about forming a partnership for your business, you should know that partners can withdraw from a partnership after it has begun operations. The effect of a partner's withdrawal on the partnership depends on the law of the state in which the partnership is formed and on the partnership agreement.

Limited Partnerships

Withdrawal of General Partner. A general partner may withdraw from a limited partnership at any time by giving written notice to the other partners. However, if the withdrawal violates the partnership agreement, the limited partnership may recover compensation from the withdrawing partner for violating the partnership agreement, and offset the compensation against any contributions or other distributions otherwise due the general partner. On the other hand, the terms of a limited partnership agreement may permit the general partner to withdraw from the partnership and receive reimbursement for its expenses in originally forming the partnership under certain circumstances.

Upon a general partner's withdrawal from the partnership, he is typically entitled to receive any distributions due to him pursuant to the terms of the partnership agreement, and, if not otherwise provided in the agreement, the fair value of his interest in the limited partnership as of the date of withdrawal based upon his right to share in distributions at that date.

A general partner's withdrawal from a limited partnership terminates his status as a general partner.

Withdrawal of Limited Partners. Generally, limited partners may withdraw from a partnership by giving not less than six months prior written notice to each general partner. Alternatively, limited partners may withdraw from a limited partnership if the withdrawal is in accordance with the written terms of the partnership agreement.

Upon a limited partner's withdrawal from the partnership, he is entitled to receive any distributions due to him pursuant to the terms of the partnership agreement, and, if not otherwise provided in the agreement, the fair value of his interest in the limited partnership as of the date of withdrawal based upon his right to share in distributions at that date.

When Certificate Must be Amended

Typically, the certificate of limited partnership must be amended upon:

  • The admission of a new general partner
  • The withdrawal of a general partner, or
  • The continuation of the business after an event of withdrawal of a general partner

So, if a general partner withdraws from a limited partnership, an amendment to the certificate of limited partnership must be filed with the secretary of state of the state of formation, generally within 30 days of the event. Failure to file an amendment may result in liability for the remaining partners.

Effect of Withdrawal

The effect of a partner's withdrawal from the partnership depends on state law and on the partnership agreement. Under some state laws, the death or withdrawal of a partner from a partnership is an ''event of dissolution'' (an occurrence that can end the partnership). However, a dissolution itself (ending of the partnership) will not occur unless another partner withdraws from the partnership within 90 days. The partnership agreement should indicate the effect of a partner's withdrawal from the partnership, taking into account the applicable state laws.

Questions for Your Attorney

  • How may a general partner withdraw from a limited partnership?
  • How may a limited partner withdraw from a limited partnership?
  • Does an amended certificate of limited partnership have to be filed with the Secretary of State after a general partner withdraws?

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