Partnerships: Internal Governance

Question 1

General Rule for Duties of Partners

Answer 1

RUPA § 409(a): “A partner owes to the partnership and the other partners the duties of loyalty and care”

Question 2

Duty of Loyalty Between Partners

Answer 2

The fiduciary duty of loyalty of a partner includes:
(1) To account to the partnership and hold as a trustee for it any property, profit, or benefit derived by the partner: …
○ (c) from the appropriation of a partnership opportunity

(2) Refrain from dealing adversely to the partnership; and

(3) Refrain from competing with the partnership before dissolution

Question 3

Carve-outs to the duty of loyalty

Answer 3

Furthering self-interest does not mean duty violated;

All the partners may authorize or ratify, after full disclosure of all material facts, a specific act by a partner that otherwise would violate the duty of loyalty

For the duty to refrain from dealing adversely to the partnership (or any comparable claim under equity or at common law) is it a complete defense to say that the transaction was fair to the partnership.

Question 4

Duty of Care Between Partners

Answer 4

Partner should refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or a knowing violation of law.

CONTRAST with Duty of Care in Agency (Act with care normally exercised in similar circumstances). Here, gross negligence or worse is a violation

Question 5

Information Duties Between Partners

Answer 5

To maintain/provide access to books and records

To furnish:
○ (1) Without demand information required to exercise rights
○ (2) Any other information on demand unless unreasonable or improper

Question 6

How To Modify Duties Between Partners

Answer 6

Relations between partners are governed by agreement, but if the partnership agreement does not provide for a matter, then RUPA governs the matter.

The Agreement may not:
○ Unreasonably restrict access to books and records
○ Alter or eliminate duty of loyalty or care, EXCEPT if not manifestly unreasonable the partnership:
- Duty of loyalty can be altered or eliminated
- Duty of care can be altered, but may not authorize conduct involving bad faith, willful or intentional misconduct, or knowing violation of law

Question 7

When is a term of a partnership agreement manifestly unreasonable?

Answer 7

The court shall decide as a matter of law whether a term of a partnership agreement is manifestly unreasonable.

The court may invalidate the term only if, in light of the purposes and business of the partnership, it is readily apparent that:
■ The objective of the term is unreasonable; or
■ The term is an unreasonable means to achieve the term’s objective

Court looks at:
■ The time the challenged term became part of the agreement
■ Only circumstances existing at that time.

Question 8

Management Role of a Partner

Answer 8

Every partner can bind the partnership in the ORDINARY COURSE OF BUSINESS, unless partner does not have authority and third party knows this.

Need a MAJORITY of partners for: A difference arising as to a matter in the ordinary course of business

Need the consent of ALL of the partners for:
- An act OUTSIDE the ordinary course of business
- An amendment to the partnership agreement