What are rights and duties of partners in business?
In a business partnership, the rights of both partners are typically detailed in the company’s partnership agreement, which is formed at the beginning of a business venture. A partnership may be defined as a group of two or more people who agree to form a company together and share in its profits, losses, and duties equally. Essentially, partners are by law joint proprietors and are held equally liable for the debts and obligations of the company. That said, the partnership agreement can detail specific responsibilities and rights that go beyond the basic ones provided by the states where the company is formed.
The following are common rights that a partner can expect to have within a business partnership:
- Partners share the planning, operation, decision-making, and management duties and rights of the business. Partners may waive this right if they so choose.
- Partners have the right to offer feedback and voice ideas during the decision-making process, as well as to have their contributions discussed among the group.
- Each partner is owed a share of the business’ profits and losses based on their investment percentage in the company.
- Each partner has the right to indemnification, which is the compensation for expenses and losses that he or she pays on the business’ behalf.
- Partners can use the business property to enhance and grow the partnership but not to fulfill their personal projects.
- Partners share ownership of the business’ property. This property cannot be sold without all the partners’ agreement.
- Partners can retire from the partnership if they receive the permission of the co-owners.
- Partners can ask for compensation for loss or damage that is suffered by the business as a result of the negligent actions of the other partners.
- Any partner has the ability to dissolve the business whenever they wish.
- Partners who have offered capital that is above the shares of others may collect interest at an agreed-upon rate.
- Partners may act on behalf of the company if there is an emergency, but they may only take reasonable action.
- The introduction of any new partners needs the agreement of the existing partners.
- All partners have the right to stay in the partnership if they so wish.
- If a partner retires or dies, then his or her descendants have the right to share in the business’ profits at an agreed-upon rate.
- Partners are not liable for events or actions that occurred prior to their joining the partnership.
- Partners who depart the partnership may join or start a competing business, but only if they do not steal customers or intellectual property from their former company. That said, an existing partner may not start a competing business while they are still involved in the partnership.
- Partners who exit the partnership should be reimbursed for their original capital contributions.
- Partners should act with mutual confidence and understanding with regards to the partnership agreement.
- Partners should act within the boundaries of their authority.
- Partners will not ask for remuneration that is not explicitly detailed in the partnership agreement.
- Partners must offer updated financial statements as agreed.
- Partners must show fiduciary duty by acting in support of the business and for the advantage of the partnership.
- Partners should be loyal to the partnership.
- Partners should keep detailed records of the partnership and provide these records to partners as requested.
- Partners should work for the company unless they have made other plans.
Do partners owe a fiduciary duty and loyalty to partnerships?
When two or more individuals enter a partnership, they are supposed to put the business’ best interests ahead of their own personal interests. This means that they are acting with fiduciary duty to the company and the partnership.
Business partners also have a duty of care to the company. This means that they must act in good faith and not engage in reckless or negligent behavior, misconduct, or legal violations that would damage the partnership and company.
The duty of loyalty refers to partners abiding by the company’s partnership agreement as well as the decisions of the other partners. They must also tell the other partners of information as it comes up, so that all are informed. The following are responsibilities that are included under the duty of loyalty:
- Acting as a trustee for profits, benefits, and property that comes from conducting business on behalf of the partnership or from using its property.
- Fair dealings while acting in place of the company or when closing it, even if these deals are not in line with one’s personal interests.
- Not competing with the partnership before it ends, or using company property to serve one’s own interests.
