When a partnership is formed, each partner has fiduciary duties to the other. A fiduciary duty is an obligation that a person has to act in the best interest of the other person or the principal. The fiduciary duty that a person owes depends on the type of the partnership agreement.
Fiduciary Obligations in a Partnership
When a person enters a partnership with another, under the Maryland Corporations and Associations Article §9A-404, each partner owes a duty of care and a duty of loyalty to the other partner.
Duty of Loyalty: A duty of care exists when each partner holds himself accountable to the partnership and acts as a trustee in all things involving the partnership. Each partner also ensures to not participate in any dealings that would qualify as adverse to the partnership. When two partners decide to dissolve the partnership, the other partner cannot compete with the partnership prior to the dissolution. An example of this is if two partners in a grocery store business dissolve their partnership but one partner keeps the store open. The other partner cannot open a new grocery store before all of the paperwork is signed.
Duty of Care: A partner will successfully meet the duty of care if the partner does not participate in action that can be deemed as grossly negligent or reckless, intentional misconduct, or knowingly violating the law.
A common misconception is that a partner violates a fiduciary duty if he or she acts in a way that furthers his or her own interest. However, as long as the action does not violate the duty of loyalty and the duty of care, this is not the case.
Fiduciary Obligations in a Limited Partnership
The fiduciary duties or obligations in a limited liability partnership differ slightly from a traditional partnership since the fiduciary obligation for a limited partnership is not outlined in the Maryland Corporations and Associations. However, partners in limited liability partnerships owe a common law fiduciary. The fiduciary obligations involve:
The Duty of Care: The partners decisions must be reasonable competent and diligent.
The Duty of Loyalty: This requires that the party act within the organization’s best interest.
The Duty of Obedience: This requires that the partner act within the scope of the relationship.
The Duty of Information: The partner must use reasonable effort to disclose information that the other partner(s) would need to know.
There may be additional duties for a partner depending on the requirements set out in limited partnership’s operating agreement.
Contact a Baltimore Lawyer Today
If you have recently entered into a partnership and are unsure of your fiduciary obligations then you may be in need of an experienced lawyer who can help provide clarity. Our legal team at The Casper Firm has consulted with numerous clients who have entered into partnerships. We are available to speak with you regarding your questions during a free consultation. All you need to do is contact our legal team at 410-989-5097 to schedule a time that works for your schedule.