In Some Cases, A Dissociated Partner May Remain Liable As A Partner

The anomalously named California Uniform Partnership Act of 1994 specifies when a partner in a general partnership "dissociates".  Cal. Corp. Code § 16601.  Upon dissociation, a general partner loses the right to participate in the management and conduct of the partnership business.  Cal. Corp. Code § 16603(1).   One would expect that the dissociated partner would also cease to be liable for a partnership obligation incurred after dissociation and that is what the act indeed provides in Subdivision (a) of Section 16703.  There is an significant exception, however,

Section 16703(b) provides that except for registered limited liability partnerships and foreign limited liability partnerships, a dissociated partner is liable as a partner to the other party in a transaction entered into by the partnership within two years after the partner's dissociation if at the time the transaction is entered into all of the following apply:

  • The other party reasonably believed that the dissociated partner was then a partner;
  • The other party did not have notice of the partner’s dissociation; and
  • The other party is not deemed to have had knowledge under subdivision (e) of Section 16303 or notice under subdivision (c) of Section 16704.

Section 16303(e) deems a person who is not a partner to know of a limitation on the authority of a partner to transfer real property held in the partnership's name if a certified copy of a Statement of Denial containing the limitation is of record.   See this post regarding Statements of Denial.  Section 16704(c) provides that a person who is not a partner is deemed to have notice of the dissociation 90 days after a Statement of Dissociation is filed.