The break up of a business partnership presents a variety of legal issues. Many small businesses start as partnerships, often without a written agreement to govern the partners’ rights and obligations in the event that a partner wants to leave the business. Under California law, if there is no written agreement, the Uniform Partnership Act determines the partners’ rights and obligations.
The Uniform Partnership Act refers to a partner’s departure as a “disassociation.” After disassociation, the departing partner has no right to continue in the management of the partnership business, but retains some duties of loyalty and care with respect to the business.
Further, under the Uniform Partnership Act, the departure of one partner does not require the partnership to dissolve. However, if the remaining partners desire to continue with the business, the partnership may have to buy out the departing partner’s interest.
Obviously, it is preferable for the partners to address all of these issues in advance in a written partnership agreement. Unfortunately, too often the need for a partnership agreement is forgotten in the excitement and workload that come with starting a new business. Once a dispute arises, it can drain the partners both financially and emotionally and, without appropriate legal advice, lead to a “lose-lose” situation.
A well-drafted partnership agreement can avoid many partnership disputes. Absent such an agreement, any partner who sees a dispute on the horizon should seek legal advice to understand completely each partner’s rights and responsibilities.
The information contained in this blog is provided for informational purposes only. It is not legal advice and should not be construed as providing legal advice.