Fiduciary Duties and Property Issues

Fiduciary Duties of Partners

Each partner owes four fiduciary duties to the partnership: (1) duty of loyalty to other partners and the pship; (2) duty of care to other partners and the pship; (3) statutory duty of disclosure; (4) duty of obedience

Duty of Loyalty

The duty requires each partner: (1) to account to the pship for any benefit derived by the partner in conducting the pship business, using pship property, or appropriating a pship opportunity; (2) to refrain from dealing with the pship in the conduct of its business as or on behalf of an adverse party; and (3) to refrain from competing with the pship in the conduct of its business

Duty of Care

The duty of care requires each partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law

Duty of Disclosure

A partner has a duty to provide complete and accurate information concerning the Pship. This is a statutory duty, but some courts treat it as fiduciary. RUPA provides that each partner and the pship shall furnish to a partner: (1) without demand, any information concerning the pship business and affairs reasonably required for the proper exercise of a partner’s rights and duties; and (2) on demand, any other information concerning the pship’s business and affairs (except to the extent unreasonable or otherwise improper

Duty of Obedience

The duty of obedience requires the partner to obey all reasonable directions of the pship and not act outside the scope of his authority

Elimination of Pship Duties

A pship agreement may not eliminate duties of loyalty or care, but the duty of disclosure may be eliminated

Partnership Capital

Pship capital is the property or money contributed by each partner for the purpose of carrying on the pship’s business

Pship Property

Pship property, in its broadest sense, is everything the pship owns, including both capital and property subsequently acquired in Pship transactions

Property deemed to be Pship property

Titled property is pship property if it is acquired in the pship’s name or in a partner’s name where it is apparent from the document that they are acting for a partnership

Property presumed to be Pship property

Under the RUPA, property is rebuttably presumed to be pship property if it was purchased with pship funds, regardless of in whose name title is held. Pship funds includes pship’s cash and pship credit

Property presumed to be Partner’s Separate Property

Under RUPA, property is rebuttably presumed to be a partner’s property if: (1) it’s held in the name of one or more partners; (2) the instrument transferring title gives no sign that they are acting for a partnership; and (3) partnership funds were not used to acquire the property

Untilted Property: Common Law Criteria

Factors that tend to indicate that the property was intended to be pship property: (1) acquisition with pship funds; (2) use of the property by the pship in conducting pship business; (3) entry of the property into the pship books as a pship asset; (4) a close relationship between the property and the business operations of the pship; (5) improvement of the property with pship funds; and (6) maintenance of the property with pship funds

Partnership Rights in Pship Property

Completely unrestricted

Partner’s Rights in Pship property

A partner is not a co-owner of pship property and has no transferable interest in pship property. A partner can simply use pship property for pship purposes

Partner’s Ownership Interest in the Pship

A pship’s ownership interest is called his “partnership interest.” The pship interest is the personal property of the partner, but there are restrictions on what a partner can do with it

Division of Rights in Pship Interest

A partnership interest is comprised of (1) management rights (right to participate in management, to obtain info about the pship, and to be recognized as partner); and (2) financial rights (partner’s right to receive his share of any profit distributions made by the pship)

Transfer of Management Rights

Unless otherwise agreed, a partner cannot unilaterally transfer his management rights and thereby make the transferee a “partner.” The default rule for admission of a new partner is a unanimous vote by existing partners

Transfer of Financial Rights

Unless otherwise agreed, the partner can unilaterally transfer his financial rights. The transferee merely has the right to receive profit distributions that would otherwise have gone to the partner