Legal Question in Business Law in California

I am a partner in a general partnership where the assets and liabilities are divided evenly between all 3 partners.

Because of personal reasons that are not related to our business, the other 2 partners have decided that they will no longer work with me and have forced me out of the company.

We want to work out a dissolution of our partnership where they would buyout my 1/3 ownership of the business.

It is taking a while to do this. Meanwhile they are selling assets that were purchased while I was still actively involved in the day to day of the company. I own 1/3 of these assets but I am not being compensated for their sale.

Am I entitled to part of the income that those assets are bringing in?


Asked on 11/12/09, 6:04 pm

5 Answers from Attorneys

Scott Linden Scott H. Linden, Esq.

It depends on if there are other assets that will cover the value as far as your share. I do suggest that you (or an attorney representing you) send them a correspondence making them aware of their responsibility to maintain records of all items sold as well as financial resources to compensate you for your share of the amount.

This will also depend on what types of goods or services you were providing and what it is that they are selling (for example office furniture versus items that the business was selling that are part of inventory).

Unfortunately, to go into further detail without some more information from you may lead to an incorrect assessment of the situation. If you want to provide me with some more information, I can provide you with a more detailed response.

If you would like to discuss this matter further in a more private forum, please feel free to contact me directly at the email address provided by LawGuru or through our firm�s website located at RulesOfEmployment.com

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Answered on 11/17/09, 6:11 pm
Terry A. Nelson Nelson & Lawless

Yes, probably, and if you can't work it out equitably among you, you may have to consider bringing legal action for partition and sale to recover the value of those assets from the other partner shares. Hiring an attorney now, to represent you before this gets any worse, may allow you to avoid litigation. Feel free to contact me if serious about doing so.

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Answered on 11/17/09, 6:15 pm

While correct, the two previous answers leave out one key fact: until the partnership is actually dissolved AND wound-up, your former partners owe you a fiduciary duty, like a trustee, to manage the assets and affairs of the business for YOUR benefit as much as their own, and they are obligated to account to you for all assets, income, expenses and debts of the business just as if you were still actively involved. The recommendation that you or an attorney on your behalf send them a letter laying out their obligations to account for everything is a good one. Hiring an attorney, even if just to keep in your "back pocket" to advise you and possibly ghost write correspondence, can help you get this process done without it turning into an expensive problem for everyone.

Frequently, in these sorts of situations where there is friction but not yet flames, employing a mediator or special master to assist everyone in proceeding with the dissolution in an orderly, fair and amicable manner, can be invaluable. If you would like information about how our mediation and neutral evaluation services might be of use to you and your partners, or if you would like to discuss how we might advise you individually, please let me know.

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Answered on 11/17/09, 6:48 pm
Bryan Whipple Bryan R. R. Whipple, Attorney at Law

Unless your partnership predates the Revised Uniform Partnership Act of 1994 ("RUPA"), and except to the extent your partnership agreement provides differently, the following rules apply to your situation. The RUPA is codified as part of the Corporations Code ("CC"), at sections 16100 et seq.

Property acquired or customarily used by the partnership is probably partnership property, even if it stands in the name of an individual partner. CC 16204. Property acquired or used by a partnership belongs to the partnership, not to the individual partners. The individual partners are not co-owners of the partnership property. CC 16203, 16501.

A partner may use or possess partnership property only on behalf of the partnership. CC 16401(g).

Each partner is deemed to have a capital account, credited with capital contributions and a share of profits, and debited for losses, distributions and withdrawals. CC 16401(a).

A partner becomes dissociated from the partnership upon the occurence of one or more of a rather lngthy list of events (CC 16601), including expulsion (CC 16601(3)) or voluntary withdrawal (16601(1)).

When a partner becomes dissociated and the partnership business is not wound up, RUPA sections 16701 through 16705 give the dissociated partner a rather substantial bundle of rights, including the right to be bought out at the value of his share (here, 1/3) as of the date of dissociation. Note in particular CC 16701(a) and (b). The partnership MUST buy out the dissociated partner. The price is the value of the partner's share on the date of dissociation and the partnership as a whole will be valued at the HIGHER of its going-concern value or its net liquidation value on that date.

There are some strict time limits imposed by law for both the dissociated partner to ask for a valuation and buy-out and for the partnership to act by making and funding the offer. The RUPA is pretty straightforward and probably can be understood, at least more or less, by a businessman not trained in law. I suggest you get a copy and skim the entire RUPA, but focus intently on the buy-out part of the law at Corporations Code section 16701. You have substantial but time-limited rights. If you go on line to look at the RUPA, be sure you're looking at the California version!

If or when you need a lawyer to assist, please keep me in mind; I am an ex-entrepreneur and since becoming a lawyer in 1999 have handled quite a few contested partnership break-ups.

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Answered on 11/17/09, 7:24 pm
OCEAN BEACH ASSOCIATES OCEAN BEACH ASSOCIATES

I hope that you have proceeded with the partnership resolution suit. If not, then contact me directly.

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Answered on 1/13/10, 3:49 pm


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