Legal Question in Business Law in California

Re: Busniess Law

Well, along comes the fourth lawyer, and naturally has to have something different to say!

In the absence of an agreement to the contrary, the withdrawal of a partner will be governed by the California Revised Uniform Partnership Act of 1994, often called the "RUPA."

A partner may always withdraw, but the withdrawal may be "rightful" or "wrongful." The withdrawal is wrongful if voluntary and it occurs before the end of the agreed term of the partnership, if it has one, before its purpose was accomplished, or when the withdrawal otherwise violates the terms of an agreement between this partner and the others, or the partnership itself. Wrongfully withdrawing partners have lesser rights in winding up partnership affairs and may be liable to the partnership for damages. Otherwise, they have the same rights to receive their capital and share of profits returned in a liquidation.

The withdrawal of a partner does not dissolve the partnership. It forces the remaining partner(s) to make a choice - either (1) wind up and liquidate the business of the partnership, in which case the withdrawn partner gets his or her share of the net liquidation proceeds and an appraisal is probably unnecessary - the marketplace will do the appraising - but determining each partner's fair share of the liquidation proceeds will probably require an accounting to determine the relative status of the (former) partners' capital accounts; or, choice (2), the remaining partner(s) can elect to continue the business and buy out the interest of the withdrawn partner, in which a negotiation would be step 1 and if that fails to produce agreement on the value of the withdrawn partner's share, then, bring on the appraisers! (and probably the lawyers).

What is fair? Whatever the parties can negotiate. If they can't agree, get an appraisal of the GOING CONCERN value, including goodwill, and liquidation value, and using the higher of the two, figure the withdrawing partner's percentage based on his or her capital account vs. the capital account of all partners together.

By "capital account" I mean the partner's account as defined in the RUPA, which is codified in the Corporations Code, at section 16401. You could look up the withdrawal, buyout-vs.-liquidation, etc. provisions too, which are reasonably easy for a businessperson to understand without a lawyer, at least in general - look at Corporations Code sections 16601 to 16603 re dissociation; 16701 to 16705 re buy-out when the business is continued; and 16801 to 16807 regarding liquidation and distribution of proceeds.

Re: Busniess Law

Check your written partnership agreement and see what it says. If it is silent (or there is no agreement), negotiate with him. Of course, without his participation, business might slow down, so that should be a consideration. By all means, if you pay him money, make sure to put everything in writing what it means that he accepts the money. For instance, what will happen with partnership debt, other obligations, the lease (if any), etc. Can your soon-to-be ex-partner go into competition with you? These are questions that have to be addressed.

Re: Busniess Law

do an accounting determine who put in what as far as assets and labor and divide it. Contact me directly.

Re: Busniess Law

He has a right to leave the partnership, which dissolves the partnership, and he has the right to be paid the value of his share. If you can't agree on value, get a professional appraisal. If that doesn't resolve it, then you'll end up in litigation fighting over it. Feel free to contact me for legal help in trying to negotiate resolution, or to defend a suit if that happens.