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Fiduciary DutyEntrepreneurs and business owners enter a partnership because of the convenience and benefits it offers in running the business. When you form a partnership, you and your partner(s) owe several types of fiduciary duties to each other, ensuring honesty and good faith in transacting partnership business. This establishes a legal and ethical relationship between you and your partner(s) of trust and confidence in the management of assets or money pertaining to the partnership.

Fiduciary Duties in General Partnerships

The fiduciary duties each partner owes to the other in general partnerships have been defined in the Code 1776.44 of the Ohio Uniform Partnership Act. According to Ohio law, partners in a business have to carry out four types of fiduciary duties:

Fiduciary Duty of Good Faith and Fair Dealing

It means that all partners must act fairly and honestly in their actions and dealings associated with the partnership. Each partner owes this duty to the others from the partnership’s formation. This may include obligations and actions from meeting the business goals to daily operations, until the partnership has been terminated or dissolved.

Fiduciary Duty of Care

Each partner is expected to act practically and reasonably when directing and managing the partnership under the fiduciary duty of care. The judgement is based on what a reasonable person would do if they were performing that particular role. Moreover, as per the business judgment rule, a partner will not be held liable for their actions if they acted under reasonable care and good faith but the results were unfavorable.

Fiduciary Duty of Loyalty

This form of fiduciary duty requires all partners to put the interests and success of their partnership above their other business or personal interest, i.e. to be loyal to the partnership. They are also required to avoid any conflict of interests between their other business and personal activities and their partnership duties. In other words, any partner is not allowed to harm the partnership and its goals for their own personal advantage.

Fiduciary Duty of Disclosure

Partners engaged in managing affairs of the partnership have a duty of candor or disclosure toward others. They must inform other partners about all known benefits and risks of a certain action, the consequences of the decision, and how it may affect the overall business. These disclosures can be associated with different partnership activities, such as finances, debts, assets, operations, and contracts. Another important part of the fiduciary duty of disclosure is that every partner should disclose any conflict of interest in partnership related decisions or dealings.

Before you enter a partnership, it is essential that you understand of all these fiduciary duties to ensure you do not end up breaching any one of them. It is best that you work with an experienced business law attorney who has deep understanding of partnerships and its legal aspects and keep you from any potential pitfalls. Contact the Law Office of John C. Grundy at 330.637.9030 or online to schedule your consultation today.