Business partners have a legal obligation to act in the best interests of the partnership and other partners, collectively referred to as fiduciary duties. It is what keeps a partnership alive and running since it enables the partners to work towards a common purpose rather than pursuing individual goals.
If you are in a partnership or planning around one, it helps to understand what the law says regarding the duties of each partner. That way, running the partnership and avoiding legal issues will be easier.
The law in California
California’s Corporation Code governs the legal relationship among business partners. It outlines each partner’s fiduciary duties to others and the partnership.
The law specifies three main fiduciary duties of partners in a business partnership, as explained below.
- The duty of loyalty requires partners to avoid engaging in any actions that would harm the partnership. This duty includes a requirement to disclose any conflicts of interest and to refrain from competing with the partnership or using it for personal gain.
- The duty of care requires partners to exercise reasonable care and skill in managing the partnership’s affairs. This duty includes a requirement to make informed decisions and to act prudently and diligently.
- The duty of good faith and fair dealing requires partners to act honestly, in alignment with the partnership’s rules, purpose and mission.
It is worth noting that fiduciary duties cannot be waived by agreement or otherwise. They remain in place as long as the partnership exists. In addition, the non-breaching parties are entitled to a remedy for a breach of fiduciary duty by a partner.
Dealing with a partner breach of fiduciary duty
When a partner violates their fiduciary duty, it can hurt the company. The business could lose money or miss out on opportunities due to the selfish actions of a few.
Every situation is different. The most crucial thing is that you respond appropriately and promptly. Therefore, it is essential to seek legal help on how best to deal with such a situation and protect your business interests.