Business Partner Can a co-owner clean out your business while you are out of…

Business Partner
Can a co-owner clean out your business while you are out of town and they are not on the rental lease?

3 thoughts on “Business Partner Can a co-owner clean out your business while you are out of…

  1. Re: Business Partner
    Absolutely. This is just one reason why few if any attorneys would recommend a partnership as a viable form of business organization.

    Michael Stone
    Law Offices of Michael B. Stone Toll Free 1-855-USE-MIKE
    3020 Old Ranch Parkway, Suite 300
    Seal Beach, CA 90740

  2. Re: Business Partner
    I assume from the caption of your question that this business is a general partnership.

    Mr. Stone’s answer is correct in a sense. Unless the partnership agreement expressly or by implication provides otherwise, either partner may deal with partnership assets in any way that is consistent with the partnership’s purposes, including moving the partnership’s inventory from address A to address B. Further, attorneys do discourage clients from using the general partnership as a business entity due to the rather open-ended liability each bears for the acts of the other.

    That being said, there are major limitations on the permissible conduct of a partner. These may be contained in the partnership agreement itself (you do have one, of course!) where the partners’ rights and duties are spelled out, or in the statutory or common law applicable to all general partnerships.

    For example, consider the following provisions of the Uniform Partnership Act of 1994, codified in the California Corporations Code:

    “Property acquired by a partnership is property of the partnership and not of the partners individually.” Section 16203.

    “A partner has no right to receive… a distribution in kind.” Section 16402, in relevant part.

    “The fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care……” Part of Section 16404.

    There are also statutory requirements for maintaining records, giving access to records, reporting certain information without demand and other information upon demand, and others that put the actions of your partner into extreme doubt.

    The most significant aspects of this that you should focus on are not that the co-owner was “not on the rental lease,” but that partners have obligations to one another and to the partnership as a matter of law if not as a matter of contract, and a partner who breaches these duties can be strung up to dry after a successful civil trial.

    You should see a business lawyer at once, while the assets and the partner can perhaps still be found.

    You did not say what possible justification the partner may have for taking this drastic action. A full analysis of your legal position would require your new attorney to determine what counterclaims and defenses the partner may have.

    If as is likely the partnership needs to be terminated, the statutes and facts will determine which of you has the right to handle the interim operations and the winding up of the affairs.

    Please contact me if you’d like some free further analysis.

    Bryan Whipple
    Bryan R. R. Whipple, Attorney at Law
    P O Box 318
    Tomales, CA 94971-0318

  3. Re: Business Partner
    The short answer is “It depends on what you meant by “clean out”.
    A general partner may move, dispose, or otherwise deal with the assets, but he must account to you, his partner, for what he did with the assets, and may be liable to you if he acted improperly with those assets.

    The fact that your partner is not on the rental lease does not affect the rights and obligations you and your partner have with respect to each other.

    If by “clean out” you mean your partner “cleaned you out”, then you may have a claim against him for an accounting. In any event, it sounds like you should act to dissolve your partnership.

    Gregg Gittler
    10537 Santa Monica Blvd., 3rd Fl.
    Los Angeles, CA 90025-4999

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