Legal Question in Business Law in California

Re: Partners want me out. Help!

We would need to see your corporate papers and agreements. It is always best to negotiate your salary increase or a buy out without litigation. A lawsuit could be filed to dissolve the corporation. Salary is a priority item iin bankruptcy and is paid prior to other creditors generally.

Re: Partners want me out. Help!

You have a possible dispute with your partners in your $5 million dollar business and you are on an Internet bulletin board asking for legal advice. What's wrong with this picture? Hang up from the Internet and call an attorney there in Monterey in whom you have confidence (not someone who presently represents your business or partners) and make an appointment.

Re: Partners want me out. Help!

This is a difficult question to answer fully, but I think I can give you some helpful starting points rather than just refer you to a "local attorney" for help with your "corporation."

First, it is necessary to determine the date of formation of the partnership and hence the law under which it was formed (usually determined by the date alone but sometimes by a subsequent election). Second, the partnership agreement must be reviewed for provisions that (lawfully) modify the basic statutory rights and duties of the partners.

In a partnership of this size and duration, even if there were no formal, written partnership agreement, a court would probably find an oral or implied agreement as to certain matters, and could deduce the terms from scaps of evidence here and there including the partners' prior conduct.

The partners' rights, duties and obligations would be taken from applicable law, as modified by the contract.

A partnership is an at-will organization; it can be dissolved by the withdrawal of any partner. Each partner has the power to withdraw at any time, but not necessarily the right to do so. Withdrawal can be rightful or wrongful.

So, one way to remove a partner is for all the other partners to withdraw. A lawyer or judge might find that this was wrongful. Either way, this method is very messy.

Another way is to expel the partner per the agreement or the provisions of Corporations Code section 16601(4) (probably won't apply here).

Withdrawal dissolves the partnership, which can then be continued by the remaining partners, or wound up and terminated. Note that ending a partnership is a three-step process -- dissolution, followed by winding up, then termination. If the remaining partners continue the business, they must buy out the dissociated partner's economic interest. Corporation Code section 16701.

All former partners may participate in winding up a dissolved partnership except those who have withdrawn wrongfully.

Due to LawGuru's word limit, I'll send the balance of my comments in a separate answer.

Re: Partners want me out. Help!

OK, here's Part II.

Could they be forced to buy you out? Pretty much, yes. If you withdraw, and your withdrawal is not wrongful and they continue the business, the remaining partners must purchase your interest. Valuation of partnership interests is a bit technical, but if this partnership has a good accountant that you can trust, you might ask for a ballpark figure. In the unlikely event the remaining partners chose to wind up and terminate the partnership business, you would also get your share of its net value at the conclusion, but the break-up value may be much lower. Also, if your withdrawal is wrongful, you may be liable for damages. A withdrawal can be wrongful either because it violates a term of the partnership agreement or because the partnership was to be for a fixed duration or specific project, and the withdrawal occured earlier.

A bankruptcy by one or more partners would complicate, delay and jeopardize your collecting your share of the partnership's net worth in a wind-up and termination.

If all partners agree to dissolve, wind up and terminate, the process should be orderly and, with the help of accountants, everyone should get their fair share of the net liquidation value.

The methods used to force out co-owners, whether minority shareholders, partners or whatever, are too numerous to discuss here; you're at the receiving end of a few of them, I'd guess.

You don't want someone who's primarily a litigator to conduct negotiations; the proper legal strengths are negotiation and deal-making.

Putting together a strategy that works for you requires personal contact, document review, and financial analysis of the business. I could do that for you. One aspect that should be examined is why this business operates as a partnership. It probably should be reorgnaized as an LLC or S corporation. Please give me a call.

Re: Partners want me out. Help!

You have a partnership, whether by oral or written contract, with rights that the courts will protect via a lawsuit if necessary. A partner can't be kicked out without dissolving the partnership and splitting up the assets; it is just like a marriage. You probably only need your attorney to 'explain' your rights and remedies to them to stop the problems. If interested, contact me.

Re: Partners want me out. Help!

You can dissolve the partnership, but, the partnership agreement should have a less drastic mechanism. Getting represented may allow you more leverage. Call me directly at (619) 222-3504.