What Are My Responsibilities to My Business Partners?

Summary

• Partners in a business owe each other fiduciary duties, meaning they must act in good faith, avoid conflicts of interest, and not compete against the partnership.
• The law implies specific duties – such as equal profit-sharing and equal decision-making rights, which a partnership agreement can vary or expand upon.
• Breaching either a fiduciary duty or an express term of a partnership agreement can give rise to a legal claim by the affected partner.
• This article is a plain-English guide to the legal duties owed between business partners in general partnerships and limited liability partnerships (LLPs) under Australian law.
• It is produced by LegalVision, a commercial law firm that specialises in advising clients on partnership structures and disputes.

Tips for Businesses
Have a written partnership agreement that clearly sets out how profits are shared, how decisions are made, and how conflicts of interest are handled. Even where the law implies duties automatically, a well-drafted agreement reduces the risk of disputes. Review it regularly as the business evolves.

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On this page

• Overview 
• Specific Duties Owed to Other Partners 
• Fiduciary Duty
• Key Takeaways 
• Frequently Asked Questions

If you run a partnership, you should be aware of the legal relationship between you and each of the other partners. This will help you avoid disputes and ensure that you act in a way that does not breach the responsibilities you owe your business partners. This article will explain the legal relationship the law imposes between partners and explore the practical implications of this duty. 

Overview 

This article only applies to businesses that operate under a partnership business structure, including general partnerships, limited partnerships, and limited liability partnerships. 

We can divide the responsibilities you owe your other partners into two categories:

• a general “duty of care” that underlies the relationship; and
• specific duties such as a requirement to share in the partnership’s profit or to reimburse a partner for any expenses they incur in the course of business. 

We will start with the specific duties.

Specific Duties Owed to Other Partners 

The law differs slightly depending on which kind of partnership structure your business adapts to, but generally, the duties are broadly similar. 

We can divide specific duties into:

• those that are imposed by the law automatically, known as fiduciary duties; and
• those that are expressly agreed to between the partners in a partnership agreement. 

Despite this, you should be aware of your specific duties if you do not have a partnership agreement or the agreement is silent on specific provisions that the law otherwise implies.

Next, we will provide an overview of the implied obligations.

Implied Obligations 

The exact nature of the obligations the law imposes between partners will depend on the type of partnership your business operates. This is because there is a different set of laws for each partnership. 

A complete account of these implied obligations is beyond the scope of this article. However, some essential terms implied into general partnerships relating to the partners’ relationships include:

• an obligation to pay back (“indemnify”) the other partners for any payment or liability they have incurred in the course of the business; 
• an entitlement to share in the profits of the partnership equally; 
• a right to have an equal say in decision-making processes; and 
• an entitlement to being paid interest on any loans or advances made to the partnership. 

Express Obligations 

Express obligations are those responsibilities you owe to your partners (and which your partners owe you) as set out in the partnership agreement. 

The partnership agreement is a contract between the partners, which means that any breach of its terms entitles the aggrieved party to sue the other party for the breach. 

The partnership agreement will vary the terms implied by law and add additional terms. 

Consequently, you are free to specify this in the partnership agreement terms. However, if you do not receive the specified amount, the other partners would be in breach of their express obligation to you, and you could sue on the partnership agreement. 

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Fiduciary Duty

For general partnerships, each partner owes the other “fiduciary duties”, the highest standard the law implies in a legal relationship. You can think of the fiduciary duty as a legal way of saying that you owe your partners (and vice versa) the utmost good faith. 

The practical effect is that you cannot act in any way that undermines this duty. This means you must:

• be honest in your dealings with your partners; 
• act for the benefit of the partnership as a whole and not just your personal interests;
• make full disclosures of any facts in a transaction that you stand to benefit from; and 
• account for any personal benefit you have made in any transaction concerning the partnership. 

Examples 

What Happens When a Partner Breaches Their Duty?

If a partner breaches their fiduciary duty, the other partners can take legal action. The remedies available depeIf a partner breaches their fiduciary duty, the other partners can take legal action. The remedies available depend on the nature of the breach.

Common outcomes include:

• the court ordering the partner to hand over any profit they made from the breach;
• the court setting aside a transaction that was entered into dishonestly; and
• a claim for compensation to cover any loss the partnership suffered.

In the UK, general partnerships are governed by the Partnership Act 1890. This Act confirms that a partner must account to the partnership for any personal benefit gained without the other partners’ consent.

Even if the breach seems minor, it can seriously damage trust between partners. In many cases, a breach leads to the dissolution of the partnership entirely. This is why a clear, well-drafted partnership agreement is so important from the start.

This duty comes into existence when partners enter into negotiations to form the business partnership and lasts even after a partner has left the partnership (subject to any additional agreements between the partners). 

Practically, if you breach the fiduciary duty, you have also likely breached an express term of the partnership agreement. However, even if there is no partnership agreement, you can claim against a partner for breaching their fiduciary duty. 

Fiduciary Duties and LLPs 

There is not a similar duty in limited liability partnerships. However, the partnership agreement will often include a term that creates such a duty of good faith. Therefore, in practice, the above applies to LLPs as they do for general partnerships. 

Key Takeaways 

Partners owe each other a high degree of good faith because the law implies a fiduciary duty between and among partners. This means you cannot compete against the business partnership, withhold information from them, or not act with the partnership’s interest in mind. The law will also imply more specific duties into partnerships, such as paying each partner an equal share of the partnership’s profits. Additionally, most partnerships are governed by partnership agreements. Therefore, your partnership agreement may have terms that outline other duties. You must abide by these terms, or you would breach the partnership agreement. 

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Frequently Asked Questions