When functioning correctly, a business partnership can be an advantageous arrangement. However, the partnership only works if each partner takes their duties seriously.
Business partners are what is known as fiduciaries. In essence, this means that they must act with the best interests of the company in mind. What exactly do fiduciary duties entail?
The duty of care
Business partners may have access to company funds, sensitive information on employees and much more. They have a duty of care to handle these things correctly. For example, sensitive information cannot be shared with unauthorized third parties. Company funds should not be spent recklessly or without the required permission. Should a partner do either of those things, then they have breached their fiduciary duties.
A duty to be loyal
Another thing that business partners need to avoid is a conflict of interest. They have a fiduciary duty to be loyal to the company they are involved with. Partners are free to engage in other business activities as long as they are not in direct conflict. For example, being a partner in an unrelated business would not be a breach of fiduciary duty. However, investing in a rival firm may be seen as a breach of duty.
Acting in good faith
Business partners must also act in good faith. This has different meanings, but it largely revolves around being open and honest. For example, should a partner spot something wrong with an investment that may negatively impact the business, then they have a duty to disclose this information.
Fiduciary duties are an essential component of business partnerships. These duties can be explained in detail in the partnership agreement. Whether you’re forming a partnership or in a dispute, it can be helpful to seek legal guidance.