CORP § 16603

No compete duty ends; management rights end - CORP § 16603

Upon dissociation, partner's management rights end and the duty not to compete terminates. Other duties continue only for prior matters.

Official text CORP § 16603 — California

Upon a partner’s dissociation, all of the following apply:

  • (1) The partner’s right to participate in the management and conduct of the partnership business terminates.
  • (2) The partner’s duty of loyalty under paragraph (3) of subdivision (b) of Section 16404 terminates.
  • (3) The partner’s duty of loyalty under paragraphs (1) and (2) of subdivision (b) of Section 16404 and duty of care under subdivision (c) of Section 16404 continue only with regard to matters arising and events occurring before the partner’s dissociation.

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 16603 sets out what happens the moment a partner is dissociated — the events causing dissociation being listed in § 16601, and including a partner's express will to withdraw, expulsion, death, bankruptcy and incapacity. Three consequences follow, and the second and third are the ones with commercial consequences.

First, the partner's right to participate in the management and conduct of the partnership business terminates. Leaving means leaving the running of the business; it does not by itself resolve the financial claim, which is governed by the buyout provisions where the partnership continues, or by winding up where it does not.

Second, the duty of loyalty under § 16404(b)(3) — the duty to refrain from competing with the partnership — terminates. This is the provision people are most often unaware of: a departed partner may compete with the firm they have just left, immediately, unless a valid contractual restraint says otherwise. Third, the duties of loyalty under § 16404(b)(1) and (2) — accounting for property, profits and benefits and appropriated opportunities, and not dealing adversely to the partnership — and the duty of care under § 16404(c) continue, but only with regard to matters arising and events occurring before the dissociation. So the former partner remains answerable for what they did while a partner, and is free as to what they do afterwards.

That division is the section's whole architecture: the past stays governed by fiduciary duty, the future does not. It also explains why the enforceability of a written non-compete matters so much on a partner's exit, and why the timing of an opportunity — before or after dissociation — is so often the contested fact. Both are questions to take to a lawyer.

When it applies

  • A partner leaves and immediately starts a competing firm
  • A departing partner said to have taken clients on the way out
  • A partner expelled from the firm still trying to make decisions
  • An opportunity that arose around the time of the departure
  • A partner who died or became bankrupt and the effect on the firm
  • Working out what a former partner can still be held to account for

What this section does not say

  • It does not stop a departed partner competing. Paragraph (2) terminates the duty not to compete on dissociation, subject to any valid contractual restraint.
  • It does not release the former partner for the past. Paragraph (3) continues the accounting and adverse-dealing duties, and the duty of care, for matters arising before the dissociation.
  • It does not say what the leaver gets paid. The buyout price where the partnership continues is governed by § 16701, and winding up is governed by §§ 16801 and 16807.
  • It does not list the events causing dissociation. Those are set out in § 16601.
  • It does not end liability to creditors. A former partner's exposure for partnership obligations is dealt with elsewhere in the chapter, not by this section.

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

A partner leaves a professional firm and opens a competing practice nearby within weeks. The remaining partners say this cannot be allowed.

How the wording applies

Paragraph (2) terminates the duty not to compete on dissociation, so competing after leaving is not by itself a breach, and any restraint has to come from a valid contractual covenant instead. It hinges on the date of dissociation and on whether the preparatory steps, meaning the lease, the announcements and the approaches to clients, happened before or after it.

How the parties settled it

Both sides accept the departure date, the leaver confirms which client approaches were made before it and accounts for the fees on those, and the firm confirms it will not object to competition after that date.

Illustrative example

A former partner is accused of having taken a client list and of failing to account for a fee received just before leaving.

How the wording applies

Paragraph (3) continues the duties of accounting and of not dealing adversely, and the duty of care, for matters arising before the dissociation. The fact this hinges on is when the fee was earned and when the list was used, because conduct before the departure remains inside the duties and conduct after it does not.

How the parties settled it

The former partner accounts for the pre-departure fee and confirms deletion of the client data taken, and the firm brings no further claim about competition after the departure date.

That's the law. Now let's settle your problem.

Say what is happening. A neutral mediator hears your side and the other party's, and walks you both to a written agreement. In the advanced settings you can ask for the decision to be reasoned on the California Codes.

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Or open a session directly and invite the other party.

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 § 16603 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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