📋 Overview

You've received a demand letter from a current or former business partner alleging breach of fiduciary duty, accounting irregularities, or other partnership violations. Partnership disputes in California are governed by the Revised Uniform Partnership Act (RUPA), codified in Corporations Code 16101-16962. These claims can involve personal liability, so responding properly is critical.

⚠ Personal Liability Risk

Partners can be personally liable for partnership obligations and for breaching fiduciary duties. This isn't just a business dispute - your personal assets may be at stake.

🕒 Accounting Rights

Under Corp Code 16403, partners have a right to inspect partnership books. If you've been denying access, you may have limited defenses to an accounting claim.

💰 Dissolution Stakes

Partnership disputes often lead to dissolution. The demand may be a precursor to a judicial dissolution action or forced buyout.

Common Partnership Dispute Claims

  • Breach of fiduciary duty - Duty of loyalty, care, and good faith under Corp Code 16404
  • Self-dealing - Using partnership assets or opportunities for personal benefit
  • Failure to account - Not providing financial information or distributions
  • Wrongful dissociation - Leaving the partnership improperly
  • Usurping partnership opportunities - Taking business that belongs to the partnership
  • Mismanagement - Negligent or reckless business decisions
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Attorney Response on Letterhead

Partnership agreement review, legal analysis, professional response with up to 2 revisions. Protects your position.

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🔍 Evaluate the Claim

Before responding, review the partnership agreement and gather evidence about the disputed conduct.

Risk Assessment Matrix

Claim Type Potential Exposure Risk Level
Self-dealing / diversion of assets Disgorgement of profits + actual damages + punitive damages HIGH
Failure to provide accounting Court-ordered accounting + attorney fees + sanctions HIGH
Breach of loyalty Lost profits + punitive damages possible HIGH
Distribution disputes Unpaid share + interest MEDIUM
Management disagreements May trigger dissolution but limited damages LOW

📄 Partnership Documents

  • ✓ Written partnership agreement
  • ✓ Amendments and side letters
  • ✓ Capital contribution records
  • ✓ Partner meeting minutes

📝 Financial Records

  • ✓ Partnership tax returns (Form 1065)
  • ✓ Bank statements and ledgers
  • ✓ Distribution records
  • ✓ Documentation of disputed transactions

⚠ No Written Agreement?

If there's no written partnership agreement, California's default rules under RUPA apply. These defaults include: equal profit/loss sharing regardless of capital contributions, equal voting rights, and broad fiduciary duties. Review Corporations Code 16401-16404 for the default rules that govern your partnership.

🛡 Your Defenses

California partnership law provides several defenses to fiduciary duty and other claims.

Partner Consent / Ratification

Under Corp Code 16404(c), fiduciary duties can be modified by agreement. If the other partner approved the transaction or conduct, they may be estopped from complaining.

When to use: You have emails, meeting minutes, or testimony showing the partner knew and approved the action.

Partnership Agreement Authorization

The partnership agreement may authorize the conduct at issue. Many agreements allow managing partners to make unilateral decisions, receive compensation, or engage in outside business.

When to use: The agreement specifically permits the activity complained of.

Business Judgment Rule

Partners acting in good faith on business matters are generally protected from liability for poor outcomes. The claim must show actual misconduct, not just bad results.

When to use: The claim is about business decisions that didn't work out, not self-dealing or fraud.

Statute of Limitations

Breach of fiduciary duty: 4 years from discovery (CCP 343). Fraud: 3 years from discovery. Accounting actions: 4 years. The discovery rule may delay the start date.

When to use: The complained-of conduct occurred more than 3-4 years ago and was known or discoverable.

In Pari Delicto

If both partners participated in the wrongful conduct, neither can sue the other for it. This defense applies when the complaining partner was equally at fault.

When to use: The other partner knew about and benefited from the same conduct they're now complaining about.

Counterclaims for Their Breaches

The best defense may be a good offense. If the complaining partner breached their own duties, assert counterclaims that may offset or eliminate their recovery.

When to use: You have evidence of the other partner's misconduct, self-dealing, or breach of duty.

🚨 Weak Defenses to Avoid

  • "I did all the work" - Doesn't entitle you to take more than your agreed share
  • "They weren't involved in the business" - Partners still have rights to information and profits
  • "Everyone does it this way" - Industry custom doesn't override fiduciary duties
  • "It was just a handshake deal" - Oral partnerships still create fiduciary duties

⚖ Response Options

Based on your evaluation, choose the appropriate response strategy.

Negotiate Buyout/Dissolution

Partnership disputes often signal an irreconcilable breakdown. Negotiating a buyout or orderly dissolution may be the best outcome for all parties.

  • Ends the conflict definitively
  • Avoids expensive litigation
  • Allows both to move on

Provide Accounting

If the demand is for financial information, providing a voluntary accounting may resolve the dispute and demonstrate good faith.

  • Fulfills legal obligation
  • May resolve concerns
  • Avoids forced disclosure

Dispute & Assert Counterclaims

If you have strong defenses and the other partner has unclean hands, dispute the claims and assert your own counterclaims.

  • Creates settlement leverage
  • May result in net recovery
  • Protects your interests

Mediation

Partnership disputes often benefit from mediation. A neutral third party can help partners reach a business resolution.

  • Confidential process
  • Preserves relationships
  • Cost-effective

📊 Partnership Litigation Cost Analysis

Example: $200,000 fiduciary duty claim

Claimed damages / disgorgement $200,000
Potential punitive damages $200,000+
Their attorney fees (if contract provides) $75,000+
Your defense costs $100,000+
Expert accounting fees $25,000+
MAX EXPOSURE IF YOU LOSE $600,000+

💡 Buyout Economics

Even paying a premium for a buyout is often cheaper than litigation. A buyout at 120-150% of book value is typically less expensive than the combined legal fees, expert costs, and business disruption of partnership litigation.

📝 Sample Responses

Copy and customize these response templates for your situation.

Acknowledgment & Request for Specificity
We acknowledge receipt of your demand letter dated [DATE] regarding the [PARTNERSHIP NAME] partnership. Your letter contains general allegations but lacks the specificity necessary for us to respond substantively. Please provide: (1) specific transactions you allege constitute breaches, with dates and amounts; (2) your calculation of alleged damages; (3) identification of specific fiduciary duties you claim were breached; and (4) any documents supporting your claims. Upon receipt of this information, we will conduct a thorough review and respond within 21 days. We reserve all rights and defenses, and nothing in this letter should be construed as an admission of any liability.
Dispute Response - Authorized Conduct
We have reviewed your demand letter and strongly dispute your allegations of breach of fiduciary duty. First, the conduct you complain of was expressly authorized by Section [X] of the Partnership Agreement, which permits [describe authorization - e.g., the managing partner to receive reasonable compensation, to make business decisions without unanimous consent, to engage in outside business]. Second, you were aware of and consented to these actions. Your email dated [DATE] expressly approved [describe the approval]. You cannot now claim breach of fiduciary duty for conduct you authorized. Third, the partnership has been profitable during my tenure, and you have received your full share of distributions totaling [$AMOUNT] over [TIME PERIOD]. We deny your claims in their entirety and reserve all rights, including the right to seek our own damages if you persist in this frivolous claim.
Buyout Proposal
While we dispute your allegations, it is clear that our partnership has reached an impasse that cannot be resolved through continued joint operation. Rather than expend substantial resources on litigation, we propose a buyout of your partnership interest on the following terms: 1. Purchase price of [$AMOUNT], representing [your share percentage times business value or formula] 2. Payment in [lump sum / installments over X months] 3. Mutual general release of all claims, including under California Civil Code Section 1542 4. Non-competition and non-solicitation provisions for [X] years 5. Confidentiality regarding the terms and the dispute Alternatively, we are willing to consider your purchase of our interest on equivalent terms. This proposal is made pursuant to Evidence Code Section 1152 and will remain open for 30 days. We believe this is the most efficient path forward for both parties.
Response with Counterclaims
We have reviewed your demand and reject your claims in their entirety. More importantly, your letter omits your own substantial breaches of fiduciary duty. Specifically, you have: 1. Failed to devote time to partnership business as required, instead pursuing [outside activities] 2. Diverted partnership opportunity [describe] to your personal benefit on or about [DATE] 3. Taken unauthorized distributions of [$AMOUNT] on [DATE] 4. [Other breaches] Under California Corporations Code Section 16404, we are entitled to an accounting from you and recovery of all amounts improperly taken. Our preliminary calculation indicates damages of [$AMOUNT], plus interest and potential punitive damages. We demand that you: (1) cease making false allegations; (2) provide a full accounting of your activities; and (3) repay all improperly diverted funds within 30 days. If we do not receive a satisfactory response, we will initiate legal action seeking damages, an accounting, and dissolution of the partnership.

🚀 Next Steps

What to do after receiving a partnership dispute demand letter.

Step 1: Secure Records

Immediately preserve all partnership documents, financial records, and communications. Do not delete or modify anything.

Step 2: Review Agreement

Read the partnership agreement carefully, especially provisions about disputes, buyouts, dissolution, and fiduciary duties.

Step 3: Gather Evidence

Document your position: approvals received, contributions made, work performed, and any misconduct by the other partner.

Step 4: Consider Outcomes

What do you want? Continued partnership, buyout of them, sale of your interest, or dissolution? Plan your response accordingly.

Dissolution Options

  • Voluntary dissolution - Partners agree to wind up the business (Corp Code 16801)
  • Judicial dissolution - Court orders dissolution for specified grounds (Corp Code 16801(5))
  • Buyout - One partner buys out the other's interest
  • Sale to third party - Partners agree to sell the entire business

If They File Suit

  • Answer within 30 days - Assert all defenses and counterclaims
  • Consider a lis pendens - If real property is involved, record a notice
  • Seek a receivership - If the partnership is being mismanaged, request court appointment of a receiver
  • Early mediation - Many courts require mediation in partnership disputes

Get Professional Help

Partnership disputes involve personal liability and complex fiduciary issues. Get a professional response letter drafted on attorney letterhead.

Schedule Consultation - $450

California Resources

  • Corporations Code 16101-16962: Revised Uniform Partnership Act (RUPA)
  • Corp Code 16404: Partner fiduciary duties
  • Corp Code 16801-16807: Dissolution and dissociation
  • Corp Code 16403: Partner's rights to information and records