Partners in a business owe each other a defined set of fiduciary duties in partnerships: loyalty, care, good faith and fair dealing, and disclosure. The Revised Uniform Partnership Act (RUPA) is the source of these obligations in most states, and it treats them as narrow, specific categories rather than an open-ended standard of good behavior. They attach the moment the partnership forms and continue through dissolution and wind-up. Breaching any of them can mean personal liability, forced return of profits, or removal from the business.
The Duty of Loyalty
Loyalty is the most heavily litigated of the four. RUPA Section 404(b) limits it to three prohibitions, each aimed at a situation where a partner’s self-interest collides with the partnership’s.
Partners must account for any profit or benefit they personally receive from partnership business or partnership property. A partner who uses a company-owned warehouse to store inventory for a personal side venture holds those side profits for the partnership, not for themselves.
Partners cannot deal with the partnership as an adverse party. Selling personal property to the partnership at an inflated price is the textbook example. Courts regularly unwind these transactions entirely, ordering rescission or full disgorgement of any profit the partner gained.1OpenCasebook. Business Associations – Fiduciary Duties in Partnerships
And partners cannot compete with the partnership while it remains active. That reaches further than opening a rival shop. If a partner discovers a business opportunity through their work for the partnership and the opportunity falls within the partnership’s line of business, they cannot take it personally. It belongs to the group.
The Partnership Opportunity Rule
The tone-setting case is Meinhard v. Salmon. One joint venturer learned of a lucrative real estate deal through his position managing the venture’s property and took it for himself without telling his partner. The court held that he had a duty to share the opportunity, declaring that fiduciaries owe each other “the punctilio of an honor the most sensitive” rather than merely the “morals of the market place.”2New York State Law Reporting Bureau. Meinhard v Salmon
Courts evaluating whether an opportunity belonged to the partnership look at whether the venture could financially pursue it, whether it fell within the partnership’s existing line of business, and whether the partnership had a reasonable expectation or interest in the deal. A partner who quietly diverts a deal that checks those boxes faces returning all profits and possible expulsion.
The Duty of Care
The duty of care is deliberately narrow. RUPA Section 404(c) limits it to refraining from grossly negligent or reckless conduct, intentional misconduct, and knowing violations of the law.3OpenCasebook. Business Associations – Fiduciary Duties in Partnerships
That gives partners wide latitude. A decision that turns out badly is not automatically a breach. Ordinary negligence, like failing to negotiate a slightly better lease or misjudging demand for a product, falls well short of the threshold. Gross negligence requires conscious disregard of a known risk, not a lapse in judgment.
Trouble comes from ignoring red flags. A partner who sees evidence of fraud in supplier invoices and does nothing crosses into reckless indifference. A partner who signs contracts they know violate environmental regulations has committed a knowing violation. In those situations, the partner can be held personally liable for the losses.
The Duty of Good Faith and Fair Dealing
Good faith and fair dealing is not a standalone fiduciary duty under RUPA. It functions as a guardrail on how partners exercise their rights under the partnership agreement and the law. RUPA Section 404(d) imposes it, and unlike loyalty and care, it cannot be eliminated by contract.
The obligation shows up in how partners use legitimate authority. A managing partner with the contractual right to set compensation cannot use that power to slash a co-partner’s draw to zero as retaliation during a disagreement. The action might fall within the agreement’s terms, but the manner and motive violate the standard.
It carries real weight during disputes and dissolution. Partners sometimes try to squeeze out a minority partner by freezing them out of decision-making, denying distributions, or making the relationship intolerable enough that the partner leaves on unfavorable terms. Courts treat these tactics as bad faith regardless of what the agreement technically permits. A partner on the receiving end can seek damages and, in extreme cases, judicial dissolution.
Good faith is the gap-filler. No partnership agreement anticipates every situation. When a partner exploits an ambiguity or silence in the agreement to harm a co-partner, this obligation asks what reasonable parties would have agreed to had they anticipated the issue.
The Duty of Disclosure
Every partner has the right to know what is happening inside the business. RUPA Section 403 requires that the partnership make its books and records available for inspection and copying during ordinary business hours. Former partners retain access to records from the period they were involved.
Book access is only part of it. Partners must proactively share information reasonably necessary for a co-partner to exercise their rights and duties, without waiting for a formal demand. A pending lawsuit, a major client leaving, a shift in financial position — each has to be communicated when learned.
On demand, a partner can also request other information about the partnership’s business and affairs, though the partnership can push back if the request is unreasonable or improper. Courts read “unreasonable” narrowly. A fishing expedition unrelated to partnership interests might qualify; a partner investigating suspected financial irregularities almost certainly does not.
Deliberately withholding material information is a serious breach. A partner who conceals a damaging financial development to gain leverage in buyout negotiations risks having the entire transaction unwound. Informational asymmetry between fiduciaries is treated as fundamentally incompatible with the partnership relationship.
Duties During Dissociation and Winding Up
A common misconception is that fiduciary duties evaporate when a partner leaves or the partnership begins winding down. They don’t. RUPA extends both loyalty and care through the winding-up phase.
During wind-up, partners must still account for any property, profit, or benefit they receive from partnership business or property. The prohibition on self-dealing continues. A departing partner who swoops in to buy partnership assets at a discount during liquidation is breaching the same duty of loyalty that applied during normal operations.1OpenCasebook. Business Associations – Fiduciary Duties in Partnerships
The duty of care likewise persists. A partner handling the final stages of the business, whether selling off inventory, settling debts, or distributing assets, must still avoid grossly negligent or reckless conduct. Dumping partnership assets at fire-sale prices when better options exist can cross that line.
The no-competition rule is the one area that changes. Under RUPA Section 404(b)(3), the prohibition on competing with the partnership applies only “before the dissolution of the partnership.” Once dissolution is underway, a partner is free to pursue competing business, though they still owe loyalty in every other respect during the wind-down.1OpenCasebook. Business Associations – Fiduciary Duties in Partnerships
How Limited Partnerships Differ
In a general partnership, every partner carries these duties. Limited partnerships split the picture. General partners in a limited partnership owe the same fiduciary duties as any general partnership partner — loyalty, care, good faith, and disclosure. Their role as managers of the business requires it.
Limited partners generally owe no fiduciary duties as long as they remain passive investors and do not participate in controlling the business. If you have no management authority, you have limited ability to harm the partnership through self-dealing or negligence. The tradeoff is that limited partners also lack the power to bind the partnership or direct its operations.
That insulation has limits. A court may impose fiduciary obligations on a limited partner who steps beyond the passive role and begins exercising actual control over decisions. The contractual obligation of good faith and fair dealing also applies to all partners regardless of designation. A limited partner who uses a technicality in the agreement to harm the enterprise or other partners can still face liability on that basis.
Changing Fiduciary Duties in the Partnership Agreement
One practically important feature of RUPA is that partners can adjust these duties by agreement, within limits. Section 103 sets the boundaries, and they are tighter than many partners expect.
What the Agreement Can Do
The agreement can identify specific types or categories of activities that will not be treated as violations of the duty of loyalty. It might specify that a partner’s ownership interest in a competing business is not a breach, or that a partner may engage in certain real estate transactions without offering them to the partnership. The agreement can also establish a process where partners vote to ratify a specific transaction that would otherwise violate the duty of loyalty, provided the ratification happens after full disclosure of all material facts.4Federal Litigation. Revised Uniform Partnership Act
Some agreements, particularly in limited partnerships, include safe harbor provisions. These create a defined process, often involving approval by an independent committee or a vote of unaffiliated partners, that shields a conflicted transaction from later challenge if the process is followed. Courts generally respect these mechanisms but scrutinize whether the process was actually followed as written.
What the Agreement Cannot Do
The agreement cannot eliminate the duty of loyalty entirely. It can carve out specific exceptions, but not a blanket waiver that lets partners self-deal at will. Any identified exception must not be “manifestly unreasonable,” and courts will strike down provisions they find too broad or one-sided.4Federal Litigation. Revised Uniform Partnership Act
The agreement also cannot unreasonably reduce the duty of care. A provision purporting to excuse gross negligence or reckless conduct will not hold up. Section 404(c) is a floor that contracts cannot drop below.
The obligation of good faith and fair dealing cannot be eliminated at all. The agreement may define standards for measuring good faith, but those standards themselves must not be manifestly unreasonable. This is the one duty that survives every drafting attempt to remove it.4Federal Litigation. Revised Uniform Partnership Act
Remedies When a Partner Breaches
When a partner violates their fiduciary duties, the partnership and the other partners have several potential avenues for relief. The remedy depends on the nature and severity of the breach.
The most common is disgorgement of profits. A partner who personally profited from a misappropriated opportunity or an undisclosed side deal can be forced to turn over every dollar earned. Courts treat the breaching partner as a trustee who was holding those profits for the partnership all along. Most fiduciary duty cases end here, and the outcome can be financially severe: no compensation for effort or risk, only an obligation to hand over the gains.
Compensatory damages cover losses the partnership or other partners suffered as a direct result of the breach. If a partner’s reckless conduct caused the business to lose a major contract, the value of that contract is recoverable. In egregious cases involving deliberate or malicious conduct, courts may award punitive damages as well.
Equitable remedies come in when money alone does not fix the problem. A court can impose a constructive trust on property or assets a breaching partner obtained through the breach, effectively declaring that the partner holds those assets for the partnership. Injunctions can stop ongoing harmful conduct, such as ordering a partner to cease competing with the partnership immediately. Rescission can unwind a transaction entirely, returning the parties to where they stood before the breach.
A formal accounting is another remedy courts order frequently in partnership disputes. It requires a complete financial reckoning of partnership transactions, often court-supervised, to determine exactly what each partner is owed. Where records are incomplete or transactions have been concealed, forensic accounting may be needed.
Statutes of limitations apply. The window to file suit varies by jurisdiction, with most states imposing deadlines ranging from roughly two to six years depending on whether the claim sounds in contract, fraud, or equity. Missing the deadline forfeits the claim regardless of its merits. Many partnership agreements also include mandatory arbitration or mediation clauses that require partners to attempt resolution outside of court before filing suit.