Duties of Partners


In many respects, the duties of a partner are the same as those of an agent.

Loyalty and Good Faith

Each partner must act in good faith toward the other partners and must not take any advantage over the other partners by misrepresentation or concealment.  Each partner owes a duty of loyalty to the partnership, and this duty bars the making of any secret profit at the expense of the firm and bars the use of the firm’s property for personal benefit.  A partner cannot promote a competing business, and if he does so, he can be liable for any damages sustained by the partnership. 

Obedience

Partners must observe any limitations adopted by a majority of the partners with regard to the ordinary details of the partnership business.  For example, if a majority of the partners operate a retail store and decide that no sales can be made on credit, a partner placed in charge of the store must obey this limitation.  If a third person does not know of the limitation, the managing partner will have the power to make a binding sale on credit to such a person, but if the third person does not pay his bill, the partner who violated the limitation is liable for any loss caused by his disobedience to the limitation.

Reasonable Care

A partner must use reasonable care in transacting the partner­ship’s business and is liable for any loss resulting from a failure to act with reasonable care.

Information

A partner has the duty to inform the partnership of all matters relevant to the partnership.  For example, if one partner is going to buy out the interest of another partner, this must be revealed to the partnership.

Management

Each partner has the right to take an equal part in transacting the business of the partnership.  It is irrelevant that one partner contributed more than another financially or that one contributed only services when the partnership was formed.

Inspection of Books

All partners are equally entitled to inspect the books of the partnership.

Share of Profits

Each partner is entitled to a share of the profits.  The partners may provide that profits shall be shared in unequal propor­tions.  However, in the absence of such an agreement, each partner is entitled to an equal share of the profits without regard to the amount of capital or services contributed to the partnership by each partner.

Compensation

In the absence of an agreement to the contrary, a partner is not entitled to compensation for services performed for the partner­ship.  Partners may agree that one of the partners shall devote full time as manager of the business and may agree that a salary shall be paid to the partner in addition to the managing partner’s share of the profits.  This sometimes occurs in legal partnerships or accounting partnerships when one of the partners is appointed managing partner.  In most cases, the managing partner practices his profession, but also handles the business affairs of the partnership and is paid or compensated in some way for this extra duty.

Repayment of Loans

A partner is entitled to reimbursement of money advanced to the partnership, such as travel expenses incurred on partnership business.

Contribution and Indemnity

If a partner pays more than his proportionate share of the debts of the partnership, he has a right to reimbursement from the other partners.  If an employee of a partnership negligently injures a third person while acting within the scope of employment, and if the injured party collects damages from one partner, this partner is entitled to reimbursement from the other partners in order to divide the loss equally.

Distribution of Capital

If a partnership is dissolved, every partner is entitled to receive a share of the partnership property after due payment of all creditors and the repayment of loans made to the partnership by the partners.  Unless otherwise stated in the partnership agree­ment, all partners are entitled to the return of their capital contributions to the partnership.

Nature and Extent of Partner’s Liability

Partners are jointly and severally liable for all torts committed by one of the partners in the scope of the partnership business.  When partners are held to be liable for an injury caused to a third person, the third person may sue all or any of the members of the partnership. Partners are also jointly and severally liable on all partnership contracts.

Each member of a partnership has individual and unlimited liability for the debts of the partnership regardless of the member’s investment or interest in the partnership.  Even if a partner only owns 5% interest in the partnership, a judgment against the partnership in the amount of $100,000.00 can be collected from the 5% owner’s personal assets, particularly if the partnership or the other partners did not have the money to pay this debt.

Liability for Breach of Duty

If a partner breaches a duty to the partnership, an injured partner may recover damages from the partner who breached the duty.

Liability of New Partners                                                                                                    

A person admitted as a partner into an existing partnership has limited liability for all obligations of the partnership which arose before he was admitted as a partner.  This type of claim could only be satisfied out of partnership property and would not extend to the individual property of a newly-admitted partner.

Effect of Dissolution on Partners’ Liability

A partner will remain liable after dissolution of the partner­ship unless all claims against the partnership have been paid or the creditors of the partnership have released their claims.  The dissolution of the partnership does not in and of itself discharge the existing liability of any partner.