Legal Question in Business Law in California

The answer probably depends very much on the actual structure of the business. If it is a true general partnership, each partner is liable to outsiders for all partnership debts. However, as between partners and the partnership, as distinguished from outsiders, this is not the case.

Assume, for example, that X, Y and Z are the partners in XYZ Co. If X embezzles money from XYZ Co., X owes XYZ Co. the money embezzled, but he doesn't owe it directly to Y and Z because Y and Z have no direct interest in partnership property. (This doesn't mean that Y and Z couldn't sue X successfully, however).

In the example, Y and Z do not owe any money to XYZ Co. because of what X has done. However, if XYZ Co. is now unable to pay its supplier/creditor ABC Co. because all of XYZ Co.'s cash is missing, ABC Co. may sue, and win against, XYZ Co., X, Y and/or Z.

I hope this is all clear enough.

Finally, many people who are in business together refer to one another as "partners" even if the business is an LLC, corporation, or something else. The answer above would be quite different if we were talking about an LLC or corporation.

"Partners" can be liable for all other partners' debts and liabilities, UNLESS you are a 'limited partner' in a properly formally organized 'limited partnership'. Asking the question implies you are not. Check you formation paperwork. I NEVER allow clients to form partnerships other than 'limited', which are generally used only for real estate investment or similar purposes. If you need legal consultation or help in this, feel free to contact me.