CORP § 16202

Profit business coowners form partnership: CORP § 16202

Under California Corporations Code § 16202, two or more persons carrying on as coowners a business for profit form a partnership, regardless of intent.

Official text CORP § 16202 — California
  • (a) Except as otherwise provided in subdivision (b), the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership.
  • (b) An association formed under a statute other than this chapter, a predecessor statute, or a comparable statute of another jurisdiction is not a partnership under this chapter.
  • (c) In determining whether a partnership is formed, the following rules apply:
  • (1) Joint tenancy, tenancy in common, tenancy by the entireties, joint property, common property, or part ownership does not by itself establish a partnership, even if the coowners share profits made by the use of the property.
  • (2) The sharing of gross returns does not by itself establish a partnership, even if the persons sharing them have a joint or common right or interest in property from which the returns are derived.
  • (3) A person who receives a share of the profits of a business is presumed to be a partner in the business, unless the profits were received for any of the following reasons: (A) In payment of a debt by installments or otherwise. (B) In payment for services as an independent contractor or of wages or other compensation to an employee. (C) In payment of rent. (D) In payment of an annuity or other retirement benefit to a beneficiary, representative, or designee of a deceased or retired partner. (E) In payment of interest or other charge on a loan, even if the amount of payment varies with the profits of the business, including a direct or indirect present or future ownership of the collateral, or rights to income, proceeds, or increase in value derived from the collateral. (F) In payment for the sale of the goodwill of a business or other property by installments or otherwise.

Text as published in the 2026 snapshot of the code.

Source: Vaquill Open US Law, compiled from official state publishers (huggingface.co), reproduced under license CC BY 4.0.

Read this provision at the official source →

What it actually says

Section 16202(a) is the sentence that surprises people who have been running something together for years: the association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership. Intention to create a legal relationship is irrelevant; what matters is what the parties actually did. There is no filing, no agreement and no name required.

Subdivision (b) excludes an association formed under another statute — a corporation, an LLC, a limited partnership — from being a partnership under this chapter. Subdivision (c) then supplies the rules for deciding whether the conduct amounts to co-ownership of a business for profit. Joint tenancy, tenancy in common, joint property, common property or part ownership does not by itself establish a partnership, even where the co-owners share the profits made by using the property; two people who own a rental flat together are not partners merely because of that. Sharing gross returns does not by itself establish one either.

Paragraph (c)(3) is the operative presumption: a person who receives a share of the profits of a business is presumed to be a partner, unless the profits were received in payment of a debt, as an independent contractor's fee or as wages or other compensation to an employee, as rent, as an annuity or retirement benefit to a beneficiary or representative of a deceased or retired partner, as interest or another charge on a loan even where the amount varies with profits, or as instalments for the sale of goodwill or other property. Share of net profits, rather than gross returns, is therefore the strongest single indicator. Whether a working arrangement has become a partnership — with the fiduciary duties in § 16404 and the joint and several liability in § 16306 attached — is a question of substance to take to a lawyer before anything goes wrong.

When it applies

  • Two people who have run a business together for years with nothing in writing
  • A friend who was brought in to help and now claims a half share
  • A profit share paid to someone who says they were never an employee
  • Co-owners of a property who also run a business from it
  • A lender whose return varies with the profits of the venture
  • Someone leaving an informal venture and asking what they are entitled to

What this section does not say

  • It does not require an agreement or a filing. The partnership is formed by the conduct, whether or not the parties intended to form one.
  • Owning something together is not a partnership. Subdivision (c)(1) says joint or common ownership does not by itself establish one, even where the owners share profits from the property.
  • Sharing gross returns is not enough. Subdivision (c)(2) excludes that on its own; it is a share of the profits that raises the presumption.
  • The profit-share presumption has six exceptions. Payment of a debt, contractor fees or wages, rent, retirement benefits, interest on a loan and instalments for goodwill are all excluded by paragraph (c)(3).
  • It does not apply to entities. Subdivision (b) excludes associations formed under another statute, so a corporation or LLC is not a partnership under this chapter.

Worked examples

Invented situations, written to show how the wording bites. They are not real cases, not judgments and not precedent, and nothing here predicts what would happen in yours.

Illustrative example

Two people run a shop together for six years, sharing the profits and both signing for stock. There is nothing in writing, and when they fall out one says it was always his business and the other was staff.

How the wording applies

Subdivision (a) forms a partnership from the association of two or more persons to carry on as co-owners a business for profit, whether or not they intended to form one. The fact this turns on is the profit share: under paragraph (c)(3) a share of the profits raises a presumption of partnership unless it was received as wages, rent, interest or one of the other listed exceptions, so how the money was drawn matters more than what either now calls the arrangement.

How the parties settled it

The parties agree the business was a partnership from an agreed date, one buys the other out at a valuation prepared by an accountant they jointly instruct, and the buyer takes over the lease and the liabilities.

Illustrative example

Someone lends money to a venture on terms paying a return that varies with its profits, and later finds a supplier is treating them as a partner.

How the wording applies

Paragraph (c)(3)(E) excludes profits received in payment of interest or other charge on a loan, even where the amount varies with the profits of the business. It hinges on the documentation and the conduct together: a written loan with a repayment obligation is one thing, and taking part in decisions and being held out as an owner is another.

How the parties settled it

The loan is documented in writing with a fixed repayment schedule and a capped profit-linked return, and the lender writes to the supplier confirming they have no ownership role.

Related sections

CORP § 16404 Partner Fiduciary Duty & Loyalty Rules | CORP § 16404 CORP § 16306 Joint and several liability for partners (CORP § 16306) CORP § 16603 No compete duty ends; management rights end - CORP § 16603 CORP § 16807 Partners must pay deficits on winding up - CORP § 16807

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We copy this text from the official publisher and re-check it against that source on every page load, but we cannot guarantee it is complete, current or free of error, and we accept no liability for any reliance on it. An amendment can take effect before a consolidation catches up. The publisher's own copy is linked below; where the two differ, it is the official one that counts.

This page reproduces the text of CORP § 16202 in force at the date shown and explains it in general terms. It is not legal advice and takes no account of the circumstances of your case, which can change the answer completely. For a live dispute, for limitation periods, and before taking any step in court, consult a qualified lawyer in California.

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