Main Content
Fiduciary Duties in Partnerships
9/9/2024 pdw
Partners owe fiduciary duties to each other. These duties encompass the obligation of good faith, loyalty and fairness in their dealings. When individuals enter into partnerships, whether by design or circumstance, they are entering into a relationship that entails not only mutual benefits but also reciprocal obligations.
See RUPA § 404(a)-(c):
SECTION 404. GENERAL STANDARDS OF PARTNER’S CONDUCT.
(a) The only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care set forth in subsections (b) and (c).
(b) A partner’s duty of loyalty to the partnership and the other partners is limited to the following:
(1) to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity;
(2) to refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership; and
(3) to refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.
(c) A partner’s duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.
The following case, Meinhard v. Salmon, is one of the most frequently cited in partnership law. It describes in vivid language just how intense these fiduciary duties are.
This book, and all H2O books, are Creative Commons licensed for sharing and re-use with the exception of certain excerpts. Any excerpts from the Restatements of the Law, Principles of the Law, and the Model Penal Code are copyright by The American Law Institute. Excerpts are reproduced with permission, not as part of a Creative Commons license.