Legal Question in Business Law in California

Re: ending an existing partnership

You can negotiate or litigate to obtain proper credit and offset for his debts. Unless willing to walk away from the old company, just opening a new one does not solve your problem; if it really is a partnership, you remain liable for those debts if he doesn't pay.

Re: ending an existing partnership

There are many issues to be considered regarding exisiting corporate officers, if any, taxes, EDD, debts, etc... Please contact my office for further consultation.

Re: ending an existing partnership

You may have a claim against your partner for, among other things, breach of fiduciary duty if he accumulated this personal debt in secret or fradulently. However, the facts and your knowledge of the situation are key, as well as a host of other corporate, legal and business factors.

Feel free to contact us for a consultation.

Re: ending an existing partnership

I am going to assume that your business is operated as a general partnership, since you call it an existing partnership and him your business partner. However, it's not unusual for co-owners of a small corporation to refer to themselves as "partners" even though that is incorrect in a technical legal sense.

It's also pretty clear that you are the buyer and he is the seller, and I assume that after the sale you will be the sole owner of the business.

You do not say whether the agreement gives you the RIGHT to buy him out, or the OBLIGATION to do so. This may affect your tactical considerations.

I think your starting point would be to get ahold of a copy of the California Corporations Code , or find it on line (I should find a link to furnish LawGuru inquirers!), and study the provisions of the Uniform Partnership Act of 1994, found at Corporations Code sections 16100 to about 16807 (it goes on beyond that, but the later provisions are of little significance to you).

In particular, you should read 16301 re a partner as agent of the partnership; 16305 re liability of partnership for acts of a partner; 16306 re joint and several liability and personal liability; 16401 to 16406 re relations of partners to each other and to the partnership; 16501 to 16504 re transferees and creditors of a partner; 16601 to 16603 re dissociation of a partner; and 16701 to 16705 about dissociation of a partner when the business of the partnership is not wound up.

The Act is not too difficult for an experienced business person to at least get a flavor of the law, and thus be a better client for his or her attorney.

My feeling is that you need to decide whether to go through with the buyout at the fixed price of $40K, or use the wind-up and dissolution procedure under the Act to try for a better deal and possibly avoidance of hidden liabilities and other booby traps.

Another aspect is whether the pilfering of company funds would act to reduce the $40K, either directly or indirectly (i.e., through a claim made after the $40k changes hands) or whether the agreement for the $40K includes releases that tie your hands. I would hope you get some kind of indemnity against undisclosed liabilities as part of the agreement.

I would be willing to review your situation free of charge if you can furnishe me additional facts including the buy-out agreement and the partnership agreement. I might also need to ask you for information about the current financial affairs of the business.

If you plan to move the business into a corporation after a buy-out, I think that's a good idea, but do keep in mind that each of you is potentially liable for all debts of the erstwhle partnership.