When a partner leaves a partnership, they may assume they are free from all business responsibilities. However, under California partnership law, a dissociated partner may still be liable for certain debts and obligations incurred by the business. Understanding these potential liabilities is crucial to protecting your financial future. In this blog post, we’ll explain when a dissociated partner may remain liable, how to limit liability, and legal steps to ensure full separation.
What Is a Dissociated Partner?
A dissociated partner is someone who has voluntarily or involuntarily left a partnership, but the business continues to operate. Dissociation can occur due to:
- Voluntary withdrawal from the partnership.
- Expulsion by other partners.
- Bankruptcy, incapacity, or death of a partner.
When Can a Dissociated Partner Remain Liable?
Even after leaving a partnership, a dissociated partner may still be liable under certain conditions:
Liability for Pre-Dissociation Debts
- A partner is generally responsible for all debts incurred while they were still part of the partnership.
- Creditors may still pursue a dissociated partner for obligations created before their departure.
Liability for Post-Dissociation Debts
- A dissociated partner may remain liable for new debts if the partnership continues to use their name or does not notify third parties of the dissociation.
- California law (Corporations Code § 16702) states that a dissociated partner can be held liable for up to two years after leaving if third parties were unaware of the dissociation.
How to Protect Yourself After Leaving a Partnership
To limit your liability after dissociation, consider the following legal steps:
Provide Formal Notice of Dissociation
- File a Statement of Dissociation with the California Secretary of State to publicly declare your departure.
- Notify all creditors, clients, and vendors in writing.
Negotiate a Release from Liability
- Request a written agreement from remaining partners stating that you are no longer responsible for business debts.
- Ensure the partnership refinances loans or removes your name from financial agreements.
Consider Legal Assistance
- A business attorney can help review partnership agreements and ensure all liabilities are properly addressed.
- If disputes arise, legal action may be necessary to prevent unjust liability claims.
Dissociating from a partnership does not always eliminate liability for business debts. To fully protect yourself, take legal steps to formalize your departure and ensure third parties are notified. If you are facing post-dissociation liability, Law Advocate Group, LLP can help. Contact us today for expert legal guidance on partnership disputes and liability protection.
