MBE Rules · Business Associations
Dissociation
Cal. Corp. Code §§ 16601-16603
The rule
A partner may dissociate at any time; wrongful dissociation (breaching the agreement or leaving a term partnership early) exposes the partner to damages, forfeits wind-up participation, and may defer buyout payment until the term ends.
In plain English
Dissociation refers to a partner's decision to leave a partnership, which they can do at any time. However, if a partner leaves in violation of the partnership agreement or before the agreed-upon term ends, they may face financial penalties and lose certain rights, such as participating in the winding up of the partnership's affairs.
Worked example
Alice and Bob are partners in a bakery with a five-year term agreement. Alice decides to leave after two years without any valid reason, violating their agreement. As a result, she is liable for damages and cannot participate in the winding up of the bakery's assets until the term is completed.
Memory hook
Dissociation is free, but wrongful dissociation can cost you!
The trap
Exams may present scenarios where a partner dissociates without clear justification, leading students to misinterpret whether the dissociation was wrongful or not. Watch for subtle hints in the facts that indicate a breach of agreement.
How examiners test it
Questions often involve a partner leaving the partnership and require analysis of whether the dissociation was wrongful, focusing on the consequences that follow such a decision.
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