Business Law Breakdown: When Good Partnerships Go Bad

Texas recognizes several different kinds of broad categories of partnerships. In a general partnership, all the partners are or can be active in the business affairs of the partnership.

Limited Partnership

In a limited partnership, there are two types of partners, both general and limited partners. Only the general partners are allowed to be active in the management of the affairs of the partnership. The general partner, as a matter of law, because of that position of trust they hold, are going to be required to exercise a fiduciary duty.

What is fiduciary duty?

One is a duty of candor; complete honesty. The fiduciary also has an obligation to disclose to his or her partners, all information dealing with the business of the partnership. That partner has a duty of loyalty to the partnership and his or her other partners. The fiduciary should not engage in any enterprise that would be in competition with the partnership.

What can a court do if a partner breaches his or her fiduciary duties to another partner?

A lot can happen. The court can award actual damages to the partner who has been hurt by the breach of fiduciary duty. If the court finds that the breach of fiduciary duty was intentional, there can be an award of punitive damages on top of any actual damages. The court can also order that the fiduciary forfeit any kind of compensation, profit or benefits that the fiduciary has gained as a result of the breach of fiduciary duty.

There are a number of remedies the court can impose if there has been a  breach of fiduciary duties. The mechanism for getting those damages back is well recognized in Texas.

If you have questions about fiduciary duties between partners, let us know.