Rights of Partners in a Partnership Business
The rights of partners in a partnership business are dictated in the partnership agreement for the business.3 min read
2. Fiduciary and Loyalty Duties
The rights of partners in a partnership business are dictated in the partnership agreement for the business. A partnership is any group of two or more individuals who have agreed to form a business together and share equally in its profits, losses, and duties. In effect, partners are treated as joint proprietors by the law and are equally liable for the debts and obligations of the partnership. However, the partnership agreement can spell out specific rights and responsibilities beyond those dictated by the laws of the state where it is formed.
Common Partnership Rights
- Partners share planning, decision making, operation, and management rights and responsibilities for the business. Partners can also waive this right.
- Partners have the right to give feedback and express ideas during the decision-making process and have these ideas discussed by the group.
- Each partner can inspect and maintain a copy of financial statements and records, including but not limited to balance and profit and loss sheets.
- Each partner claims a share of the business's profits and losses based on the percentage of his or her investment.
- Each partner has the right to indemnification, or compensation for losses and expenses he or she pays on behalf of the business.
- Partners may use business property to grow the partnership but not to satisfy personal means.
- Partners share ownership of all business property and this property cannot be sold unless all partners consent.
- Partners may retire from the partnership with the consent of co-owners.
- Partners can demand compensation for damage or loss suffered by the business from other partners who are responsible due to negligence.
- Any partner can dissolve the business at any time.
- Partners who have contributed capital above the shares of others can collect interest at an agreed-upon rate.
- Partners can act on behalf of the firm in an emergency but must take only reasonable action.
- Introduction of new partners requires the consent of existing partners.
- All partners may remain in the partnership if they choose to do so.
- If a partner retires or dies, the partner or his or her descendants can share in profits at an agreed-upon rate.
- Partners are not liable for events that took place before they joined the partnership.
- Partners who leave the partnership can start or join a competing business provided they do not solicit customers or infringe on intellectual property. However, an existing partner cannot start a competing business while still involved in the partnership.
- Partners who leave the partnership must be reimbursed for their original capital contributions.
- Partners will act with mutual understanding and confidence regarding the partnership agreement.
- Partners will act only within their scope of authority.
- Partners will not demand remuneration that is not dictated in the partnership agreement.
- Partners must provide updated financial statements as agreed.
- Partners must act in a way that supports the greater good of the firm and advantage of all partners.
- Partners will be faithful to the partnership.
- Partners will keep accurate records of the partnership and share those with other partners as requested.
- Partners will work for the firm unless other arrangements have been made.
Fiduciary and Loyalty Duties
When entering a partnership, partners are expected to put the firm's best interests higher than their own best interest, acting with fiduciary duty to both the firm and the other partners.
Owners of a partnership are also bound to a duty of care. This means they will do their best to act in good faith and avoid reckless or negligent actions, legal violations, and willful misconduct.
The duty of loyalty means that partners will abide by the partnership agreement and decisions of the partners. They will inform the other partners of information of interest that arises. Responsibilities covered under the duty of loyalty include:
- Acting as a trustee for benefits, profits, or property that arise from conducting business on behalf of the partnership and/or using its property
- Fair dealings while acting on behalf of the partnership or when wrapping it up, even if these dealings are in contrast with your best personal interests
- Not competing with the partnership before it dissolves or using partnership property to serve your own purposes
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