In addition to the obligations set forth in a partnership agreement, partners owe to the partnership and their other partner(s) certain fiduciary duties called the “duty of care” and the “duty of loyalty.” To satisfy one’s duty of care in connection with the partnership business, a partner shall refrain from “engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.” N.J.S.A. 42:1A-24(c).
To satisfy a partner’s duty of loyalty, the partner shall:
- account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity;
- refrain from knowingly dealing with the partnership in the partnership business as or on behalf of a party having an interest materially adverse to the partnership; and
- refrain from actions intended to cause material injury to the partnership in the conduct of the partnership business before the dissolution of the partnership.
Notably, the above fiduciary duties may be expanded upon or limited in a partnership agreement. Although there are certain allegations that, if proven, would obviously be considered a breach of one’s fiduciary duty – such as misappropriating partnership assets – other allegations of misconduct may be less self-evident. As such, many partnership disputes involve the evaluation of whether a partner’s conduct was: (1) merely a “mistake,” which would not typically rise to the level of a breach of the duty of care; or (2) “palpably unreasonable” and/or done with “an indifference to consequences,” which would rise to the level of a breach of the duty of care.
Spector & Ehrenworth, P.C. has extensive experience analyzing and advising on issues relating to partnership rights and obligations. If you are involved in a partnership dispute, attorneys at the firm would be happy to discuss with you the specifics of your case and advise you with respect to your legal options. To schedule an appointment to speak with a business attorney, call (973) 845-6525 or e-mail firstname.lastname@example.org.
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