Legal Question in Business Law in California

For the withdrawing partners it is far better to dissolve and the remaining partners form a new partnership. Of course that is in the abstract.

The first step in understanding partnership law is to understand its somwhat confusing terminology, which includes words such as dissolve, dissociate, withdraw, wind up, and terminate, all with defined meanings that are not necessarily intuitive.

California general partnerships are governed by the Revised Uniform Partnership Act of 1994, or "RUPA". The RUPA is codified in the Corporations Code at sections 16100 through 16962.

A withdrawal is a sub-set of dissociation. One may "dissociate" from a partnership by a voluntary withdrawal; if a partner dies, that is a dissociation, but not a withdrawal.

A partner can dissociate at any time, and the dissociation may be either "rightful" or "wrongful," depending upon the reasons and circumstances, including whether the partner is under contract to remain a partner for some further time (such a withdrawal/dissociation would be wrongful because it breached the contract).

Dissociation, whether by withdrawal or otherwise, does not necessarily trigger dissolution of the partnership any more. At one time, ANY change in the roster of partners caused dissolution, but under the RUPA a partnership may be continued by the remaining partners, so long as there are at least two.

When a partner dissociates, the remaining partners are supposed to buy out that partner's economic interest in the partnership at a price determined according to law, if they continue the business for more than 90 days (Corporations Code section 16701(b)).

A partnership is dissolved, and its business shall be wound up, only upon the occurrence of any of the events specified in Corporations Code section 16801. There are six items, plus a couple of sub-items, listed. A partnership continues after dissolution, but only for purposes of winding up, per CC 16802. The partnership is terminated when the winding up of its business is completed.

Corporations Code section 16703 covers the liability of a dissociated partner for partnership debts. With a few exceptions noted in 16703(b), 16703(a) basically says he or she is not liable for debts incurred after dissociation.

In some cases, the foregoing can be modified by an express provision of the partnership agreement. A few of the statutory provisions cannot be modified by agreement.