Legal Question in Business Law in California

Re: partnership

Here are some general rules and concepts for you to consider and apply if they fit.

First, the California secretary of State encourages but does not require general partnerships to register when they are formed. This is different for limited partnerships and limited-liability partnerships, which must register in order to achieve existence.

If it chooses to do so, a general partnership can file a Form GP-1, "Statement of Partnership Authority," which tells the world that the partnership exists. Then, when a partner withdraws, it may file a Form GP-4, "Statement of Dissolution," as notice to the world that the partnership has ceased. Of course, the business can be continued, but it would then be a sole proprietorship or a different partnership. It may be necessary to have filed a GP-1 before a GP-4 may be filed. See Corporations Code section 16805.

Also see Corporations Code sections 16601 to 16807 for complete statutory provisions covering withdrawal of a partner and windup of partnerships. This is several pages of fine print, but fairly easy to understand.

"Backing out" of a partnership would be termed "withdrawal," a form of dissociation. A partner always has the power to withdraw from a partnership, but the withdrawal may be wrongful. A partner who withdraws wrongfully loses her right to participate in winding up the partnership business and may be liable to the other partner(s) for damages. Nevertheless, any dissociating partner is entitled to an accounting and pay-off for his or her share of the partnership capital, after adjudtment for any harm caused by a wrongful dissociation.