A General Partner in a Limited Partnership has Fiduciary Duties
As we recently explained, a limited partnership is a legal business entity made up of at least one limited partner and at least one general partner. Limited partners enjoy limited liability, but are not allowed to carry out management roles, absent a written agreement otherwise. General partners are usually responsible for management of business operations. As such, general partners are held to a higher standard of conduct known as fiduciary duties.
What is a Fiduciary Duty?
A fiduciary duty is often defined as the duty of loyalty combined with the duty of care. Texas courts have likened the duty owed by a general partner to a limited partner to that owed by a trustee to a beneficiary.
The duty of care means a general partner should take actions on behalf of the partnership with the care of an ordinarily prudent person under similar circumstances. A mistake or error in judgment does not by itself amount to a breach of the duty of care.
A partner's duty of loyalty is described as including:
- Accounting to the partnership and holding for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or from use of partnership property;
- Refraining from dealing with the partnership on behalf of a party having an interest adverse to the partnership; and
- Refraining from competing with the partnership or dealing with the partnership in a manner adverse to the partnership.
Tex. Bus. Org. Code § 152.205.
General rules for general partners
General partners should keep complete, accurate records or have systems in place to be sure proper accounting and records. General partners should not treat partnership property as their own property, but must deal with partnership property with similar care as trustees holding trust property.
Likewise, general partners must maintain loyalty to the partnership, regardless of their personal business affairs. If a general partner has outside interests in other business entities, those outside businesses should not compete against or take away from the partnership's business prospects.
Be sure you understand your prospective duties before you undertake the role of general partner. Contact one of our experienced Brazos County, Texas commercial law attorneys at the Peterson Law Group for more information or to make an appointment. Call 979-703-7014 and visit us online to sign up to receive our free online newsletter.