Rights and Liabilities between General Partners

Question 1

What duties do partners owe each other?

Answer 1

General partners are fiduciaries of each other and the partnership, therefore general partners owe to each other and the partnership a great duty of loyalty.

(i) No self-dealing
(ii) No usurping partnership opportunities
(ii) No secret profits at the partnership’s expense

Question 2

What is the remedy for a breach of loyalty (partnership)

Answer 2

Partnership may bring an “action for accounting” to recover (i) losses that are caused by a breach of and also (ii) may disgorge profits made by breaching partner

Question 3

What’s the difference between partnership property and personal property?

Answer 3

The test is: whose money is being used to buy the property?

1) If partnership money is being used → specific partnership asset, which cannot be transferred by individual partners without partnership authority (illiquid)
2) If personal money is being used → personal property owned by individual partners and therefor may be transferred by individual partners to third parties (liquid)
3) Share in management (i.e. the right to vote): cannot be transferred outside the partnership to third parties (illiquid)
4) Share in profits and surplus: owned by each individual partner (liquid)

Question 4

How are partnerships managed?

Answer 4

Absent an agreement, each partner is entitled to equal control (vote). So 1 partner, 1 vote.

ORDINARY MATTERS: governed by majority vote

FUNDAMENTAL MATTERS: require unanimous consent

Question 5

How do partners get a salary?

Answer 5

Absent an agreement on salary, there is no salary

Exception: partners get paid for helping to wind up the partnership business

Question 6

How do partners share profits and losses

Answer 6

1. Absent an agreement, PROFITS SHARED EQUALLY

2. Absent an agreement, LOSSES SHARED LIKE PROFITS