Source: https://chuckfarrar.com/consequences-general-partnership-dissociation/
Timestamp: 2018-07-23 17:09:50
Document Index: 359506323

Matched Legal Cases: ['art 3', 'art 3', '§ 16603', '§ 16404', 'art 1', 'art 2']

Business “Divorces” under California’s General Partnership Statutes:Part 3 ~ Law Office of Chuck Farrar
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Consequence One: Dissociating partners immediately upon dissociation are free to compete with their former partnership. Their duty of loyalty not to compete with the partnership ends. See law below.
Consequence Two: Dissociating partners immediately upon dissociation have no right to participate in the management or conduct of the partnership’s business or participate in the winding up of the partnership’s business on dissolution. See law below.
Consequences of general partnership dissociation are clearly set forth in the California Corporations Code.
Section 16603 provides:
“Upon a partner’s dissociation, all of the following apply:
(3) The partner’s duty of loyalty under paragraphs (1) and (2) of subdivision (b) of Section 16404 and duty of care under subdivision (c) of Section 16404 continue only with regard to matters arising and events occurring before the partner’s dissociation.”
Corp. Code, § 16603
Section 16404 provides in part:
“(a) The fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subdivisions (b) and (c).
(d) A partner shall discharge the duties to the partnership and the other partners under this chapter or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.….”
Corp. Code, § 16404 (bolded font emphasis supplied)
The need (desire) to set up a competing business and move on with life vs. the desire to participate in the winding up of the former partnership’s business are indeed powerful and under the law of competing interests.
But There Is a Choice to Be Made
After considering the consequences of general partnership dissociation carefully, you’ll need to make a choice.
Choice One: Dissociate and move on with forming and operating a business that competes with the dissociating partner’s prior partnership’s business, and do not participate in the conduct of the business of the former business nor the winding up of that former business, or
Choice Two: Do not dissociate, and (a) reach a new agreement with former partners or (b) participate with former partners in dissolving and winding up of the partnership.
Once again, the Yin and Yang of life is inescapable. It pays to carefully consider the consequences of general partnership dissociation.
If you missed this series, you can find:
Part 1: Breaking Up Is Hard to Do.
Part 2: Seven Key Concepts Business Partners Must Understand When Divorcing Their Business Partner(s).