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Can a Partner Withdraw Without Dissolving the Business?

On Behalf of | Jun 13, 2023 | Firm News

A partnership involves a business arrangement between two or more individuals with a common goal of achieving a profit from operations. Generally, the partners serve as co-owners of the business, share profits, and also are responsible for liability for debts and actions of the partnership. After the passage of time, the partners may disagree about the vision for or methods of operations of the business and may decide to part ways. However, various challenges often arise when one partner wants to withdraw from the business while the others want to avoid a dissolution.

At the Law Offices of Jerry J Goldstein, we have the diligence and expertise to advise and direct clients in challenging matters involving business partner withdrawal and partnership dissolutions. Our experienced California business litigation attorney can analyze your situation and inform you about your available options to ensure the survival of your business when a partner withdraws.

Our firm proudly serves clients throughout the Coachella Valley, including Palm Desert, California, as well as communities in and around San Bernardino, Imperial, Orange, Los Angeles, Riverside, and San Diego counties, among others.

Common Reasons for a Partnership Dissolution

Partnership dissolution is the process of terminating a business partnership legally. Once terminated, all business operations of the partnership will end. Here are some common reasons for partnership dissolution:

  • The retirement or death of a partner.
  • A change in the market conditions, lack of success or declining revenues which makes the business no longer sustainable.
  • Change in the goals or desired direction of one or more of the business partners.
  • Personal disputes or conflicts between business partners.
  • Unequal commitment among business partners.
  • Failure to trust the other partners.
  • Mixing personal relationships with the business.
  • Disagreement over how the business should be operated or managed.
  • Differing values and disagreement over the long-term goals or vision for the partnership.

A business partner may decide to withdraw for a different number of reasons. Thankfully, the California Revised Uniform Partnership Act (RUPA) allows the remaining partners to continue running the business or dissolve the partnership if they wish.

The Revised Uniform Partnership Act (RUPA)

Previously, under the Uniform Partnership Act, if a business partner withdrew from a general partnership in California, this would be considered a business dissolution. Thus, ending the partnership automatically.

However, according to the California Revised Uniform Partnership Act (RUPA), if a partner withdraws from the business, it will be considered a matter of dissociation. Also, the Act considers the partnership as a separate entity from its partners.

Therefore, when a partner withdraws, the partnership is allowed to continue for 90 days, and the remaining business partners can decide whether to continue or close the business and dissolve the partnership.

The Partnership Agreement

A partnership agreement is a legal document or contract which indicates the terms and provisions of the partnership. Essentially, a well-drafted partnership agreement should cover the following minimum provisions:

  • Steps for resolving disputes among the partners.
  • The expected capital contributions of each partner.
  • Rules addressing voting when there are three or more partners.
  • Provisions for allocating profits, losses, and debts.
  • Steps to admit or withdraw partners.
  • Steps to dissolve the partnership.

Under RUPA, business partners are expected to share financial and management decisions affecting the business equally. When there is a dispute, the partners can always refer to the partnership agreement to determine how such disputes should be resolved.

Depending on the provisions of the original agreement, the partners can determine the next steps to take when one partner withdraws or explore their available dispute resolution options. A wise California business formation attorney can help draft your partnership agreement and ensure that it covers all necessary provisions.

Rely on Strong Legal Assistance

Unfortunately, disagreements over financial and management issues can create factions or pit partners against themselves. When this happens, referring to the original partnership agreement can help provide clarity about resolving partnership disputes or the next steps after a business partner withdraws.

At the Law Offices of Jerry J Goldstein, we are committed to helping business partners settle disputes before it results in business dissolutions. As your legal team, we can tell you about alternative dispute resolution options, including settlement meetings, mediation, negotiation, and arbitration, and help determine the right one to pursue. Also, our attorney will work with all parties involved to resolve disputes amicably and ensure the continuity of your business.

Contact us at the Law Offices of Jerry J Goldstein today to schedule an initial consultation with a trusted business law attorney. We possess the knowledgeable legal counsel you need to make informed decisions before the business dispute reaches the dissolution stage. Our firm proudly serves clients throughout the Coachella Valley, including Palm Desert, California, as well as communities in and around San Bernardino, Imperial, Orange, Los Angeles, Riverside, and San Diego counties, among others.