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Consider This Before Leaving a General Partnership

Herrig & Vogt Feb. 2, 2015

Are you thinking about leaving a general partnership, but are wondering what legal steps you have to take in order to preserve your financial interests and protect yourself from future liability? At Herrig & Vogt, LLP, we have experience assisting people with this process, and we can help you move forward with your decision.

In California, a general partnership is the association of two or more persons that hold themselves out as co-owners of a business for profit. The act of leaving a general partnership is called “dissociation,” which can occur in several different ways. Still, a partner can leave a general partnership at will at any time. However, the manner in which a partner leaves determines whether his or her dissociation is rightful or wrongful, which can have an effect on the partner’s return on investment.

In addition, the number of partners in a general partnership also has an effect. A two-partner general partnership automatically enters into dissolution and has to “wind up” if one partner dissociates and leaves the partnership. The winding up period is the process in which the partnership’s assets are located and liquidated in order to pay of its creditors. Then, any profits or losses are credited to each partner. At the end of this process, the partnership is terminated. However, if there are three or more partners in a general partnership, the dissociation of one partner causes the partnership to buy out the dissociating partner’s interest in the business, and the partnership remains intact.

Another important consideration is the liability that the dissociating partner will have after leaving the partnership. By leaving the partnership, the dissociating partner is still liable for any partnership obligations incurred before his or her dissociation. Additionally, a dissociated partner could also be held accountable for partnership liabilities incurred during the two years following the partner’s dissociation unless certain steps are taken.

Each business relationship is unique to the participants involved, so contact our firm today and we can help you figure out what steps needs to be taken in order for your goals to be accomplished.