2 Must Know Duties Between Partners in a Partnership

Fiduciary Duties Between Iowa Partners

Legal Duties Between Iowa Partners

The Holidays are upon us, and just as tempers can unfortunately flare during family gatherings, so too can they flare between partners at Holiday parties.  And while frustrations arise for good, bad, and other reasons, knowing whether a valid legal reason exists – as opposed to a personal, trivial issue – is important to know for the future of your business and partnership.  To this end, partners often wonder what, if any, legal duties they owe to each other and the partnership generally.  This post quickly identifies two legal duties that partners owe to each other and to the partnership under Iowa law.

Fiduciary Duties

This blog frequently discusses fiduciary duties relative to companies and corporations (e.g. here, here, here), but it is important to remember fiduciary duties extend to other business entities, including partnerships.  Just as Iowa’s legislature adopted laws imposing fiduciary duties upon members in a LLC and directors and officers in a corporation, so too have they adopted laws imposing fiduciary duties upon partners in partnerships.

Among other legal duties, black-letter Iowa law imposes two (2) fiduciary duties upon partners in a partnership.  The two (2) fiduciary duties that partners owe to each other and to the partnership are: (1) the duty of loyalty; and (2) the duty of care.

Duty of Loyalty.  Pursuant to Iowa law – and as of the date of this post – a partner’s duty of loyalty requires the partner, to among other things, account to the partnership and hold as trustee for the partnership any property, profit, or benefit derived by the partner in the conduct of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity.  In other words and generally speaking, partners need to track and hold for the benefit of the partnership any and all benefits obtained by an individual partner as a result of the partnership.  Further, this duty also states that a partner is to refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership (i.e. it legally ends).  

Duty of Care.  Pursuant to Iowa law – and as of the date of this post – a partner’s duty of care requires the partner to refrain from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.  If a partner engages in illegal, grossly negligent, reckless, or intentional misconduct, the partner may be liable to the partnership and others partners for losses and other damages. 

These basic guidelines (further outlined in this Iowa law code section), which are not exhaustive of all legal obligations between partners, provide a basic legal framework for how Iowa law requires partners to interact with each other and the partnership itself.  Should you have questions about your legal duties or the legal duties that a partner owes to you or your partnership, or how a partner’s wrongful conduct may give rise to a claim for damages, you should consider contacting a licensed attorney that practices in the area of corporate disputes.  

To read more about partnership law in Iowa, see this prior post about inadvertent partnerships in Iowa.

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About Matthew McKinney

Attorney focused on civil and commercial litigation.
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