What Are My Rights As a Business Partner?

Your rights as a business partner include shared decision-making, business operations, and management as a business partner unless these rights are waived. Business partners owe a fiduciary duty, a duty of loyalty and the duty of good faith to each other and the company.

Not all business partners understand the nature of their or even their rights in a partnership. In addition, some entrepreneurs are even a little bit unsure of what defines a partnership.

A business partnership is a group of two or more entrepreneurs who create a business together. When they form the business, they agree that each partner will share in the partnership’s responsibilities, duties, losses, and profits. Business partners also share responsibility for the liabilities and debts of the partnership, and how they do so depends on the specific nature of the company.

Typically, the partnership agreement that entrepreneurs sign informs each partner of their specific rights. By signing the partnership agreement, business partners pledge to be part of the company and honor their fiduciary duty to the other partners and the business.

Partnership agreements also contain details regarding each partner’s specific responsibilities and rights, and some of these may differ from individual to individual.

This article covers the rights that business partners have in a partnership. We will split partners’ rights into loyalty and fiduciary duties and shared partnership rights.

What is Fiduciary Duty for Business Partners?

When business partners form a partnership, they enter into a trusted agreement. Business partnerships embody several core principles, and one of the most essential is the idea that partners cannot intentionally harm the business.

Therefore, the term fiduciary responsibility implies an implicit duty to the company. For the partners, the sake of the business should come before their personal goals, financial or otherwise.

Not every business partner chooses to act by their fiduciary duty. Some partners do what is best for themselves instead of first considering the business. Since most partnership agreements emphasize fiduciary duties, partners who do not honor their fiduciary duty can run into problems with the other partners and sometimes be removed or forced out of business.

Business partners are expected to regard the company’s interests as more important than their best interests. They must follow their fiduciary duty when interacting with the other partners and regarding the firm. If you need help, please get contact our breach of contract law firm in California.

What is the Duty of Care for Business Partners?

Duty of Care refers to another responsibility that business partners possess. Business partners must pledge to act in good faith towards each other and the company. Partners honoring their duty of care will avoid the following:

Breaking the law
Misconduct
Negligence
Reckless actions when running the business
Reckless actions as an individual

Duty of care means that partners should act cautiously yet sensibly regarding business. They should think in practical terms when directing and managing the business.

Duty of care may seem a bit abstract, but it essentially asks partners to be engaged with the business, informed about the company, and present when dealing with other partners. It also requires partners to:

Use their good judgment in making decisions
Utilize independent judgment, which can lead to a productive dialogue with other partners
Ask experts for advice
Ask experts to supply information
Govern the partnership well
Find the practices that best suit their company

A general partnership is expected to keep accurate financial records under the duty of care. Partners are also to exercise the duty of care with employees.

For example, Dave works for a paper company. Dave is a great employee, but he is below-average height, and he struggles to type at the normal desks. Dave’s company purchases a smaller desk and keyboard for Dave so he is able to work to his potential.

Dave’s company honored their duty of care by helping Dave work more comfortably and more effectively.

What Are Loyalty Duties for Business Partners?

Loyalty duties are also important for partners to adhere to when forming a partnership and throughout the company’s tenure. Responsibilities covered under the duties of loyalty for business partners are:

Acting as the director of business property
Acting as a trustee for benefits and profits of the business
Dealing fairly when the business is running, placing the business before personal gains
Dealing in fair, even terms when wrapping up the business, placing the business before personal priorities
Refusing to compete with the partnership before the business dissolves.
Refusing to use any property belonging to the partnership for personal purposes

What Are Common Partnership Rights?

Partners agree to work for the firm unless other preparations exist.
Partners agree to maintain accurate records of the partnership’s dealings and share those with other partners when they ask.
Partners agree to be faithful to the company and the partnership.
Partners agree to act in a way that supports the collective good of the firm and helps all of their fellow partners.
Partners agree to provide updated financial statements to partners and others upon request.
Partners agree not to ask for remuneration unless it is included in the partnership agreement.
Partners agree to share the management and operation of the company, as well as duties and responsibilities. Note: this right can be waived by partners, too.
Partners will act only within the sphere of their authority and not go outside of it.
Partners are key figures in the company’s decisions. For example, Jeff, a partner in an investment firm, often provides feedback and new ideas to the group during meetings. When partners volunteer ideas to the group often, companies grow and flourish.
Individual partners maintain copies of financial records and statements, including loss, balance, and profit information.
Partners agree to act in accordance with the partnership agreement and put their faith in it.
Partners agree to share in the company’s profits and losses based on the percentage of their investment in the business.
Partners understand their right to compensation for losses and expenses they must pay on the company’s behalf.
Partners agree that they may use company property to help the partnership prosper but not for individual goals.
Partners share ownership of company property; they cannot sell this property unless all partners agree unanimously.
With the consent of the other partners, a partner can retire from the business.
Partners can demand compensation for losses or damages suffered by the company brought on by other partners who behaved negligently.
Any partner can dissolve the business at any time.
Partners who have contributed funds greater than others’ shares can collect interest at the established rate.
Partners who act on behalf of the firm in an emergency must take suitable, prudent action.
The partners’ consent is necessary to add new partners to the business.
All partners may remain in the partnership if they decide to do so.
If a partner passes away or retires, the partner or their descendants can share their profits at the agreed-upon rate in the partnership agreement.
Business partners are not culpable for events before they join the partnership.
Partners who leave the partnership can start or join a competing business provided they do not infringe on intellectual property or take existing company customers. However, existing partners cannot start competing businesses while still partners in the prior business.
Partners who leave the company are reimbursed for their original capital contributions.

Why Contact Nakase Wade for your Partnership Questions?

From new to old, all business partners sometimes need help with their businesses. Whether there is a disagreement between partners or a company partner who struggles with their duty to loyalty, our legal team can provide the answers you need.

Many business partners struggle with their positions because they are uninformed. We want business partners to not only understand the partnership agreements that they sign but to comprehend each of their important duties.

Understanding the rights and duties of business partners is no simple task. There are many important responsibilities, from partnership agreements to fiduciary duties, and every company and founding agreement is a little different.

If you are struggling to understand your rights as a business partner, we are here for you. Additionally, many people wonder what to do when they discover their partner is not following the partnership agreement terms. If this is the case, ask yourself:

Do I have proof that my partner violated the company’s founding document?
Is my partner also violating their fiduciary duty?

Will their behavior damage the business?

Will their behavior harm my interests?

We understand that partnerships can be complex and that the relationships between business partners can become complicated.

Our goal is to ensure that our client’s interests are safe and that the company is also safe. All business partners have rights, and an experienced attorney is the best person to explain and clarify those rights.

Our California business litigation lawyers and corporate attorneys understand when it makes sense to take legal action and when it makes sense to identify alternate plans. If your partnership has a problem, there is no time to wait. No question about business partners’ rights is too large or small, and our goal stays the same: to defend the interests of our clients.

Contact Nakase Wade today for a free consultation. We understand the nature of business partnerships and want you to understand your rights. So we are happy to begin with, with the partnership agreement, and once that document is perfected, we will stay with you every step of the way.

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