Liability and Exit Rights in an Informal Business Partnership

Q: Does forming a partnership in California require a written agreement?

No. The association of two or more persons to carry on as co-owners a business for profit forms a partnership whether or not the persons intend to form one, regardless of whether anything was signed or registered.

Q: Does receiving a share of business profits make someone a partner?

It creates a presumption of partnership. That presumption does not apply where the profits were received for one of the enumerated reasons, such as payment of a debt, wages or other compensation to an employee or independent contractor, rent, or interest on a loan.

Q: What duties do California partners owe one another?

Partners owe the duties of loyalty and care. The duty of loyalty includes accounting to the partnership and holding as trustee for it any property, profit, or benefit derived in conducting or winding up the business. The duty of care is limited to refraining from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

Question

In January, I entered into a verbal business agreement with a man from California. I’m based in South Africa, and the nature of our business was service-based—we helped small recruitment agencies to acquire new clients. We agreed that we would share the business 50/50. However, as we began signing clients, he placed all agreements, accounts, and income under his own name. All funds went directly into his personal bank account. I was not involved in promoting the business publicly, nor did I have any contact with clients or sign any formal documentation. The business was never officially registered. I also did not contribute any startup capital and was not compensated for any of the work I did over the past four months. My role was strictly behind the scenes, helping with backend tasks such as building the website and running email campaigns on behalf of the business. The clients never knew I was involved, and all agreements were signed solely by him. Earlier this week, he emailed me stating that he wants to continue the business solo and will still manage the existing clients, but offered no clear explanation. I requested a face-to-face call, but he kept postponing until Thursday, when he informed me that he is taking full ownership and proceeded to lock me out of all systems, digital assets, and accounts. He admitted during both emails that he wasn’t truthful to me about the finances and that intents to compensate me for the work I have done. The only public mention of my involvement was on my LinkedIn bio, which is just four weeks old and was never used to promote or communicate with clients. The only people aware of our partnership are our romantic partners and a few friends and family members I casually spoke to. To be clear: All accounts, agreements, and digital assets are in his name. I was never legally or publicly recognized as a business partner. I made no financial investment and signed no legal documents. My role was informal, behind the scenes, and based on a verbal agreement for a 50/50 share. I was never compensated from the profits made through the business My Questions: Can I be held liable for anything that happened with the business in the last 4 months and going forward now that he has forced me out? 2. I want to formally exit the business. Can I send an email stating that I’m relinquishing all affiliations, responsibilities, and liabilities to him? Does he need to sign a document and what happens if he doesn’t sign? 3. If I exit the business, am I still entitled to request compensation for the work I’ve contributed and my share of the profits earned during my involvement? 4. How should I structure an exit agreement that fully releases me from any past and future liabilities while also formally requesting compensation for the work I’ve done and the profit I’m owed?

i received an email with confirmation link. don't know if thet is the text you are referring to

A. Jason Velez · Accepted Answer

On what you describe you were very likely a partner from the moment you agreed to share the business 50/50 and began working it — no writing, registration, or public acknowledgment is required. That status is the answer to all four of your questions, and it cuts both ways: it is what entitles you to an accounting, and it is also why you cannot simply declare yourself free of what the business did.

California law treats the association of two or more persons to carry on as co-owners a business for profit as a partnership, whether or not the persons intend to form one. A person who receives a share of the profits is presumed to be a partner, unless the profits were received for one of the enumerated reasons — payment of a debt, wages or other compensation to an employee or independent contractor, rent, or interest on a loan.

That exception is the live risk in your situation, and it is worth being clear-eyed about. You were never actually paid anything, and your arrangement was a 50/50 share of the business itself rather than a fee for defined deliverables, which points toward partnership. But he will have an incentive to characterize the backend work as contractor services, and the fact that you contributed no capital, signed nothing, had no client contact, and were not publicly identified gives that characterization something to work with. This is precisely the kind of fact-driven question that needs an attorney looking at the actual emails.

If you were a partner, he owed you the duties of loyalty and care. The duty of loyalty includes accounting to the partnership and holding as trustee for it any property, profit, or benefit derived in the conduct of the business — which is directly on point where all agreements, accounts, and income were placed in his own name. The duty of care is narrower than people expect: it is limited to refraining from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law, so ordinary carelessness is not a breach. His written admission about not being truthful regarding the finances matters here.

On exiting, be careful about sequence and wording. A general release drafted to end your liability can easily extinguish your claim to compensation and your profit share at the same time — which is the opposite of what you want. Get the accounting first; sign the release last.

What you can do

1. Do not send an exit email or sign any release until an attorney has reviewed the language — a broad release can waive your compensation claim along with your liability.

2. Preserve everything documenting the arrangement: the emails describing the 50/50 split, your work product, and his written admissions about the finances.

3. Request a full written accounting of the business's income, clients, and expenses before any exit terms are discussed.

4. Have an attorney separate the two objectives in any agreement — release from future liability on one side, your compensation and profit share on the other.

5. Raise the cross-border element early, since where you are based affects both practical enforcement and the shape of any agreement.

Time limits matter here. Claims for breach of fiduciary duty and for a partnership accounting are subject to filing deadlines that run from specific events in your dispute, and the lockout is likely one of them. Get individual review from a California business attorney now rather than negotiating this yourself while a clock runs.

Liability and Exit Rights in an Informal Business Partnership

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