Internal Affairs of Partnership

Question 1

Duties owed to partnership by partner?

Answer 1

Every partner is FIDUCIARY of partnership and owes LOYALTY and CARE to partnership

Question 2

Duty of Loyalty to partnership

Answer 2

Partners must NOT:
1) compete with partnership business
2) advance interest adverse to partnership
3) usurp a partnership opportunity

Question 3

Limitations to duty of loyalty

Answer 3

Under state law, parties cannot ELIMINATE duty of loyalty, but can limit duty of loyalty by DESCRIBING DIFFERENTLY so long as it is not MANIFESTLY UNREASONABLE

Question 4

Safe-harbor option to duty of loyalty

Answer 4

If a partner is worried something may be disloyal, he can make FULL DISCLOSURE of material facts and a certain percentage of OTHER PARTNERS may authorize the transaction

Question 5

Duty of care: 3 rules

Answer 5

Partners must NOT:

1) engage in grossly negligent or reckless conduct

2) engage in intentional misconduct

3) engage in a knowing violation of the law

Question 6

Can a duty of care be reduced?

Answer 6

Yes, but only REASONABLY (e.g. allowing partner to do limited business elsewhere)

Question 7

Who do duties of loyalty and care apply to?

Answer 7

Only CURRENT partners, NOT prospective or former partners