Partner’s Dissociation When Business Not Wound Up - Uniform Partnership Act Of - Corporations - CA

Section § 16701

This law lays out what happens when a partner leaves a partnership. The remaining partners must buy the leaving partner's share at a price based on the business's current value. Any debts or actions affecting the partnership's finances can lower this buyout price. The partnership is also responsible for protecting the leaving partner from any partnership debts, except those created by acts done by the leaving partner after dissociation. If they can't agree on a price within 120 days, the partnership must pay what they think is fair, or the departing partner can go to court to settle the buyout. A wrongful departure means payment might be delayed until a certain time, but it will accrue interest and be secured. The court can step in to set the price, query offsets, and decide who pays legal fees if the parties don't act in good faith.

Except as provided in Section 16701.5, all of the following shall apply:

(a) If a partner is dissociated from a partnership, the partnership shall cause the dissociated partner’s interest in the partnership to be purchased for a buyout price determined pursuant to subdivision (b).

(b) The buyout price of a dissociated partner’s interest is the amount that would have been distributable to the dissociating partner under subdivision (b) of Section 16807 if, on the date of dissociation, the assets of the partnership were sold at a price equal to the greater of the liquidation value or the value based on a sale of the entire business as a going concern without the dissociated partner and the partnership was wound up as of that date. Interest shall be paid from the date of dissociation to the date of payment.

(c) Damages for wrongful dissociation under Section 16602, and all other amounts owing, whether or not presently due, from the dissociated partner to the partnership, shall be offset against the buyout price. Interest shall be paid from the date the amount owed becomes due to the date of payment.

(d) A partnership shall indemnify a dissociated partner whose interest is being purchased against all partnership liabilities, whether incurred before or after the dissociation, except liabilities incurred by an act of the dissociated partner under Section 16702.

(e) If no agreement for the purchase of a dissociated partner’s interest is reached within 120 days after a written demand for payment, the partnership shall pay, or cause to be paid, in cash to the dissociated partner the amount the partnership estimates to be the buyout price and accrued interest, reduced by any offsets and accrued interest under subdivision (c).

(f) If a deferred payment is authorized under subdivision (h), the partnership may tender a written offer to pay the amount it estimates to be the buyout price and accrued interest, reduced by any offsets under subdivision (c), stating the time of payment, the amount and type of security for payment, and the other terms and conditions of the obligation.

(g) The payment or tender required by subdivision (e) or (f) shall be accompanied by all of the following:

(1) A statement of partnership assets and liabilities as of the date of dissociation.

(2) The latest available partnership balance sheet and income statement, if any.

(3) An explanation of how the estimated amount of the payment was calculated.

(4) Written notice that the payment is in full satisfaction of the obligation to purchase unless, within 120 days after the written notice, the dissociated partner commences an action to determine the buyout price, any offsets under subdivision (c), or other terms of the obligation to purchase.

(h) A partner who wrongfully dissociates before the expiration of a definite term or the completion of a particular undertaking is not entitled to payment of any portion of the buyout price until the expiration of the term or completion of the undertaking, unless the partner establishes to the satisfaction of the court that earlier payment will not cause undue hardship to the business of the partnership. A deferred payment shall be adequately secured and bear interest.

(i) A dissociated partner may maintain an action against the partnership, pursuant to subparagraph (B) of paragraph (2) of subdivision (b) of Section 16405, to determine the buyout price of that partner’s interest, any offsets under subdivision (c), or other terms of the obligation to purchase. The action shall be commenced within 120 days after the partnership has tendered payment or an offer to pay or within one year after written demand for payment if no payment or offer to pay is tendered. The court shall determine the buyout price of the dissociated partner’s interest, any offset due under subdivision (c), and accrued interest, and enter judgment for any additional payment or refund. If deferred payment is authorized under subdivision (h), the court shall also determine the security for payment and other terms of the obligation to purchase. The court may assess reasonable attorney’s fees and the fees and expenses of appraisers or other experts for a party to the action, in amounts the court finds equitable, against a party that the court finds acted arbitrarily, vexatiously, or not in good faith. The finding may be based on the partnership’s failure to tender payment or an offer to pay or to comply with subdivision (g).

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Section § 16701.5

This law states that if a partner leaves a partnership (dissociates) within 90 days before the partnership dissolves, certain rules apply. First, these departing partners are still considered partners for certain purposes. Second, if a departing partner left in a way that causes harm (wrongful dissociation) or owes money to the partnership, those factors will be considered when figuring out how much money or assets they're entitled to receive when the partnership wraps up its affairs.

(a) Section 16701 shall not apply to any dissociation that occurs within 90 days prior to a dissolution under Section 16801.

(b) For dissociations occurring within 90 days prior to the dissolution, both of the following shall apply:

(1) All partners who dissociated within 90 days prior to the dissolution shall be treated as partners under Section 16807.

(2) Any damages for wrongful dissociation under Section 16602 and all other amounts owed by the dissociated partner to the partnership, whether or not presently due, shall be taken into account in determining the amount distributable to the dissociated partner under Section 16807.

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Section § 16702

This law section explains that for two years after a partner leaves a partnership, the partnership can still be held responsible for actions taken by that partner if the person doing business with them thought they were still a partner, didn’t know they had left, and had no legal notice that the partner had left. If the partnership ends up being liable because of something the former partner did, the former partner has to reimburse the partnership for any losses or damages caused.

(a) For two years after a partner dissociates, the partnership, including a surviving partnership under Article 9 (commencing with Section 16901), is bound by an act of the dissociated partner that would have bound the partnership under Section 16301 before dissociation only if at the time of entering into the transaction all of the following apply to the other party:

(1) The other party reasonably believed that the dissociated partner was then a partner.

(2) The other party did not have notice of the partner’s dissociation.

(3) The other party is not deemed to have had knowledge under subdivision (e) of Section 16303 or notice under subdivision (c) of Section 16704.

(b) A dissociated partner is liable to the partnership for any damage caused to the partnership arising from an obligation incurred by the dissociated partner after dissociation for which the partnership is liable under subdivision (a).

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Section § 16703

When a partner leaves a partnership, they are still responsible for any debts or obligations the partnership had before they left. If a partner leaves and the partnership enters into a new deal within two years, the former partner might still be held responsible if the other party reasonably thought that person was still a partner and wasn't informed otherwise. However, if the remaining partners and the creditor agree, the former partner can be released from past debts. Also, if the creditor makes major changes to the payment terms without the former partner's approval, the leaver is freed from those obligations.

(a) A partner’s dissociation does not of itself discharge the partner’s liability for a partnership obligation incurred before dissociation. A dissociated partner is not liable for a partnership obligation incurred after dissociation, except as otherwise provided in subdivision (b).

(b) Except for registered limited liability partnerships and foreign limited liability partnerships, a partner who dissociates is liable as a partner to the other party in a transaction entered into by the partnership, or a surviving partnership under Article 9 (commencing with Section 16901), within two years after the partner’s dissociation, only if at the time of entering into the transaction all of the following apply to the other party:

(1) The other party reasonably believed that the dissociated partner was then a partner.

(2) The other party did not have notice of the partner’s dissociation.

(3) The other party is not deemed to have had knowledge under subdivision (e) of Section 16303 or notice under subdivision (c) of Section 16704.

(c) By agreement with the partnership creditor and the partners continuing the business, a dissociated partner may be released from liability for a partnership obligation.

(d) A dissociated partner is released from liability for a partnership obligation if a partnership creditor, with notice of the partner’s dissociation but without the partner’s consent, agrees to a material alteration in the nature or time of payment of a partnership obligation.

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Section § 16704

This law allows a former partner or the partnership to officially record that the partner has left the partnership by filing a statement with the Secretary of State. Once this statement is filed, it limits the former partner's authority to act on behalf of the partnership. People who are not partners are considered legally informed about the partner leaving 90 days after the statement is filed.

(a) A dissociated partner or the partnership may file a statement of dissociation stating the name of the partnership as filed with the Secretary of State, any identification number issued by the Secretary of State, and that the partner is dissociated from the partnership.

(b) A statement of dissociation is a limitation on the authority of a dissociated partner for the purposes of subdivisions (d) and (e) of Section 16303.

(c) For the purposes of paragraph (3) of subdivision (a) of Section 16702 and paragraph (3) of subdivision (b) of Section 16703, a person not a partner is deemed to have notice of the dissociation 90 days after the statement of dissociation is filed.

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Section § 16705

If a partnership keeps using the name of a partner who has left the business, that former partner is not automatically responsible for any debts or obligations that the ongoing partnership or remaining partners take on.

Continued use of a partnership name, or a dissociated partner’s name as part thereof, by partners continuing the business does not of itself make the dissociated partner liable for an obligation of the partners or the partnership continuing the business.

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