2. Loyalty and Good Faith
• Each partner must act in good faith toward the
other partners and must not take any advantage
over the other partners by misrepresentation or
concealment. Each partner owes a duty of loyalty
to the partnership, and this duty bars the making
of any secret profit at the expense of the firm and
bars the use of the firm’s property for personal
benefit. A partner cannot promote a competing
business, and if he does so, he can be liable for
any damages sustained by the partnership.
3. Obedience
• Partners must observe any limitations adopted by a
majority of the partners with regard to the ordinary
details of the partnership business. For example, if a
majority of the partners operate a retail store and
decide that no sales can be made on credit, a partner
placed in charge of the store must obey this
limitation. If a third person does not know of the
limitation, the managing partner will have the power
to make a binding sale on credit to such a person, but if
the third person does not pay his bill, the partner who
violated the limitation is liable for any loss caused by
his disobedience to the limitation.
4. Reasonable Care
• A partner must use reasonable care in
transacting the partnership’s business and is
liable for any loss resulting from a failure to
act with reasonable care.
5. Information
• A partner has the duty to inform the
partnership of all matters relevant to the
partnership. For example, if one partner is
going to buy out the interest of another
partner, this must be revealed to the
partnership.
6. Management
• Each partner has the right to take an equal
part in transacting the business of the
partnership. It is irrelevant that one partner
contributed more than another financially or
that one contributed only services when the
partnership was formed.
7. Inspection of Books
• All partners are equally entitled to inspect the
books of the partnership.
8. Share of Profits
• Each partner is entitled to a share of the
profits. The partners may provide that profits
shall be shared in unequal propor-
tions. However, in the absence of such an
agreement, each partner is entitled to an
equal share of the profits without regard to
the amount of capital or services contributed
to the partnership by each partner.
9. Compensation
• In the absence of an agreement to the contrary, a
partner is not entitled to compensation for services
performed for the partnership. Partners may agree
that one of the partners shall devote full time as
manager of the business and may agree that a salary
shall be paid to the partner in addition to the managing
partner’s share of the profits. This sometimes occurs
in legal partnerships or accounting partnerships when
one of the partners is appointed managing partner. In
most cases, the managing partner practices his
profession, but also handles the business affairs of the
partnership and is paid or compensated in some way
for this extra duty.
10. Repayment of Loans
• A partner is entitled to reimbursement of
money advanced to the partnership, such as
travel expenses incurred on partnership
business.
11. Contribution and Indemnity
• If a partner pays more than his proportionate
share of the debts of the partnership, he has a
right to reimbursement from the other
partners. If an employee of a partnership
negligently injures a third person while acting
within the scope of employment, and if the
injured party collects damages from one partner,
this partner is entitled to reimbursement from
the other partners in order to divide the loss
equally.
12. Distribution of Capital
• If a partnership is dissolved, every partner is
entitled to receive a share of the partnership
property after due payment of all creditors
and the repayment of loans made to the
partnership by the partners. Unless otherwise
stated in the partnership agreement, all
partners are entitled to the return of their
capital contributions to the partnership.
13. Nature and Extent of Partner’s
Liability
• Partners are jointly and severally liable for all torts committed by
one of the partners in the scope of the partnership business. When
partners are held to be liable for an injury caused to a third person,
the third person may sue all or any of the members of the
partnership. Partners are also jointly and severally liable on all
partnership contracts.
• Each member of a partnership has individual and unlimited liability
for the debts of the partnership regardless of the member’s
investment or interest in the partnership. Even if a partner only
owns 5% interest in the partnership, a judgment against the
partnership in the amount of $100,000.00 can be collected from the
5% owner’s personal assets, particularly if the partnership or the
other partners did not have the money to pay this debt.
14. Liability for Breach of Duty
• If a partner breaches a duty to the
partnership, an injured partner may recover
damages from the partner who breached the
duty.
16. Partners
• A person admitted as a partner into an
existing partnership has limited liability for all
obligations of the partnership which arose
before he was admitted as a partner. This
type of claim could only be satisfied out of
partnership property and would not extend to
the individual property of a newly-admitted
partner.
17. Effect of Dissolution on Partners’
Liability
• A partner will remain liable after dissolution of
the partnership unless all claims against the
partnership have been paid or the creditors of
the partnership have released their
claims. The dissolution of the partnership
does not in and of itself discharge the existing
liability of any partner.
