CORP § 16807

Partners must pay deficits on winding up - CORP § 16807

When winding up a California partnership, assets pay creditors first. Partners must contribute to cover deficits; others share shortfall proportionally.

Official text CORP § 16807 — California
  • (a) In winding up a partnership’s business, the assets of the partnership, including the contributions of the partners required by this section, shall be applied to discharge its obligations to creditors, including, to the extent permitted by law, partners who are creditors. Any surplus shall be applied to pay in cash the net amount distributable to partners in accordance with their right to distributions under subdivision (b).
  • (b) Each partner is entitled to a settlement of all partnership accounts upon winding up the partnership business. In settling accounts among the partners, the profits and losses that result from the liquidation of the partnership assets shall be credited and charged to the partners’ accounts. The partnership shall make a distribution to a partner in an amount equal to any excess of the credits over the charges in the partner’s account. Except for registered limited liability partnerships and foreign limited liability partnerships, a partner shall contribute to the partnership an amount equal to any excess of the charges over the credits in the partner’s account.
  • (c) If a partner fails to contribute the full amount that the partner is obligated to contribute under subdivision (b), all of the other partners shall contribute, in the proportions in which those partners share partnership losses, the additional amount necessary to satisfy the partnership obligations for which they are liable under Section 16306. A partner or partner’s legal representative may recover from the other partners any contributions the partner makes to the extent the amount contributed exceeds that partner’s share of the partnership obligations for which the partner is personally liable under Section 16306.
  • (d) After the settlement of accounts, each partner shall contribute, in the proportion in which the partner shares partnership losses, the amount necessary to satisfy partnership obligations that were not known at the time of the settlement and for which the partner is personally liable under Section 16306.
  • (e) The estate of a deceased partner is liable for the partner’s obligation to contribute to the partnership.
  • (f) An assignee for the benefit of creditors of a partnership or a partner, or a person appointed by a court to represent creditors of a partnership or a partner, may enforce a partner’s obligation to contribute to the partnership.

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 16807 is the arithmetic of ending a partnership, and its order is not negotiable. Subdivision (a) provides that in winding up the business, the assets — including the contributions of the partners required by the section — are applied to discharge the partnership's obligations to creditors, including, to the extent the law permits, partners who are creditors. Only any surplus is applied to pay in cash the net amount distributable to the partners.

Subdivision (b) sets out how the partners' share is calculated. Each partner is entitled to a settlement of all partnership accounts on winding up. In settling accounts among the partners, the profits and losses resulting from liquidating the assets are credited and charged to the partners' accounts. Where a partner's account shows an excess of credits over charges, the partnership distributes that amount. Where the charges exceed the credits — a deficit — the partner must contribute an amount equal to that excess, except in registered and foreign limited liability partnerships. That is the sentence that surprises people who assumed winding up could only ever produce a payment out.

Subdivision (c) deals with the partner who does not pay: the other partners must contribute, in the proportions in which they share losses, the additional amount necessary to satisfy the partnership obligations for which they are liable under § 16306, and a partner who contributes more than their share may recover the excess from the others. Subdivision (d) requires further contributions after settlement for obligations that were not known at the time. Subdivision (e) makes a deceased partner's estate liable for the obligation to contribute, and subdivision (f) allows an assignee for creditors or a court-appointed representative to enforce a partner's obligation to contribute. Working out the accounts, and who owes what, is the point at which an accountant and a lawyer are both needed.

When it applies

  • A partnership closing with debts still outstanding
  • One partner claiming the assets should be split before creditors are paid
  • A partner whose capital account is in deficit at the end
  • A partner who cannot or will not pay their contribution
  • A partnership debt that surfaces after everything was settled
  • The estate of a partner who died before the accounts were finished

What this section does not say

  • Partners do not come first. Subdivision (a) applies the assets to creditors before any surplus is distributed to partners.
  • Winding up can cost a partner money. Subdivision (b) requires a partner whose account is in deficit to contribute, except in registered and foreign limited liability partnerships.
  • Settling the accounts is not the end of exposure. Subdivision (d) requires further contribution for partnership obligations that were not known at the time of settlement.
  • It does not apply where the partnership continues. Where a partner is bought out and the business goes on, § 16701 governs the price rather than this section.
  • It does not say when a partnership dissolves. The events causing dissolution and the requirement to wind up are in § 16801.

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 partnership is closing with money in the account and suppliers still unpaid. One partner wants the cash split between them now and the debts dealt with later.

How the wording applies

Subdivision (a) applies partnership assets to discharge obligations to creditors first, and only any surplus is distributed to the partners. It turns on that order rather than on either partner's needs, because distributing to partners ahead of creditors leaves both of them personally exposed under section 16306.

How the parties settled it

The creditors are paid from the account first, an agreed reserve is held back for a stated period against late claims, and the balance is split according to the capital accounts once the reserve is released.

Illustrative example

At the end of a winding up one partner's capital account is in deficit, and they say they will not pay anything in.

How the wording applies

Subdivision (b) requires a partner whose account is in deficit to contribute the amount of that deficit, except in a registered or foreign limited liability partnership. What decides it is the status of the firm and the arithmetic of the accounts, and subdivision (d) means a later-discovered obligation can require a further contribution even after everything looked settled.

How the parties settled it

The deficit is paid over an agreed instalment period with interest, and the partners jointly commission a final account from an accountant whose figures both accept as binding.

Related sections

CORP § 16306 Joint and several liability for partners (CORP § 16306) CORP § 16404 Partner Fiduciary Duty & Loyalty Rules | CORP § 16404 CORP § 16603 No compete duty ends; management rights end - CORP § 16603 CORP § 16202 Profit business coowners form partnership: CORP § 16202

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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 § 16807 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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