Legal Question in Business Law in California

Re: General partnership. Quick question

One of the major disadvantages of a partnership is that when one partner decides to end the business relationship, then the partnership generally dissolves. After a partnership is formally dissolved, the partners must discharge all business obligations to creditors and divide all assets and profits among themselves.

The name of the partneship belongs equally to you and your partner unless you had a previous agreement (even verbal).

If she doesn't respond to your attempts to communicate about the name have an attorney write the partner a letter informing that without a response she has effectively abandoned the name.

Re: General partnership. Quick question

All partnerships have agreements. At best, the agreement is written; often, it is oral. If there is no express agreement, written or oral, a court would find an implied agreement and determine its terms from the partners' conduct.

Partnership law contains some fairly simple and specific steps and rules governing the breakup of partners' relationships and termination or continuation of the business. These steps and rules are codified in the Corporations Code, starting with CC section 16601, "Events causing dissociation." Later sections deal with what happens when the business of the partnership is carried on by the remaining partner(s) and what happens when the business of the partnership is wound up.

Further, a partner's dissociation can be permissible or "wrongful," amd while a partner always has the power to withdraw, if the withdrawal is wrongful, the withdrawing partner has fewer rights, e.g., cannot participate in winding up and may be liable for damages.

I strongly suggest you read the sections of the Corporations Code dealing with partner dissociation and partnership wind-up referenced above.

In general, when a partner withdraws and the business is continued, the withdrawing partner is entitled to be bought out, i.e., paid the value of her share of the partnership as reflected by the partnership books. You do have books, right? If it were a 50-50 partnership and the net book value was $100, the withdrawing partner would be entitled to $50, maybe less if the withdrawal was wrongful.

A withdrawing partner is not entitled to a specific partnership asset, such as a business name.

If the facts support your taking the position that your partner withdrew, and my guess is that they do, you can probably keep the name and discharge your obligation to her by paying her half of the partnership's book value in cash.

It sounds to me as though this was a start-up business and it probably has net assets of less that $5,000. In that case, you may be OK just informing your ex-partner that she withdrew and that you are continuing the business, and send her a check for her half. If the business is worth more than this, it would be imprudent to proceed without having a business lawyer review the facts, your books and your agreement, as litigation is more likely to result when more money is at stake.

Finally, you should notify any persons the partnership was doing business with or negotiating to do business with as to the dissociation, and amend your FBN and other filings and accounts to try to head off possible acts that would obligate the surviving business.