What are Partnership Fiduciary Duties?
What are each partner’s duties to each other and the partnership?
Partners owe certain duties to each other and the partnership. These duties are known as fiduciary duties. The Corporations Code outlines the fiduciary duties each partner owes to the partnership, as well as the other partners. Breach of a fiduciary duty generally entitles the non-breaching partner(s) to a remedy. Fiduciary duties cannot be waived by agreement. California law recognizes four (4) fiduciary duties: duty of care; duty of loyalty; duty of obedience; and, duty of good faith and fair dealing.
Pursuant to the duty of care, a partner must refrain from grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of the law.
A partner’s duty of loyalty includes all of the following: (1) to account to the partnership and hold as trustee for it any property, profit, or benefit derived from the partnership business; (2) to refrain from dealing with the partnership as or on behalf of a party having an adverse interest to that of the partnership; and, (3) to refrain from competing with the partnership in the conduct of the partnership business.
A partner’s duty of obedience to the partnership and other partners ensures that the partner will act in a manner consistent with the partnership’s business purpose and mission. The partners have a duty to guide and oversee the functions of the business, so that it operates in accordance with its purpose and mission.
A partner shall also discharge the duties of the partnership and the other partners under the Corporations Code and/or the Partnership Agreement and exercise any rights consistently with the obligation of good faith and fair dealing. A partner must not take any unfair advantage of the partnership or other partners and must not enjoy any greater rights. A partner must not obtain a secret profit or any undue benefit at the partnership’s expense.
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