When two or more people join to run a business, a key part of making these partnerships successful is making sure each person’s duties are clear. This helps partners trust each other and stay accountable. However, a recent Texas Supreme Court decision shows that this can be a nuanced issue. What should you know?
What are fiduciary duties?
Fiduciary duties are legal or ethical obligations of one party to act in the best interest of another. In a business partnership, partners must prioritize the partnership’s success and health above their own personal gain. For example, partners must make company decisions based on what will be best for the business, not their individual wealth.
A recent decision in Texas shows how complex this issue can be
The Texas Supreme Court’s decision in Bertucci v. Watkins clarified the duties of limited partners in partnership. The case involved a dispute between Anthony R. Bertucci and Eugene L. Watkins, who co-owned entities that built affordable housing. Bertucci and his estate claimed that Watkins used partnership money for personal reasons.
The structure of the limited partnerships Bertucci and Watkins formed for these projects made the situation complex. As a result, the court’s decision specifically addressed whether a limited partner can assume fiduciary duties by acting as a general partner. Simply calling oneself a “managing” or “operational” partner does not automatically give them this status. However, if a limited partner takes on the responsibilities of a general partner, they might have fiduciary duties.
Could this affect your business?
This ruling clarifies when a limited partner may take on fiduciary duties in their partnership, even if that arrangement was informal. The decision highlights how important it is to understand the specific roles and responsibilities within partnerships.
Partnerships often involve complex fiduciary responsibilities. This can lead to disputes without proper management. It is important for partners to clearly define their roles and have ways to solve disagreements. Getting help from a knowledgeable attorney can reduce the risk of a partnership dispute. An attorney can also help address any issues if a partner fails to fulfill their duty.
You can protect your company in complex situations
Understanding fiduciary duties is important for anyone in business or legal partnerships. Staying informed about these legal decisions can help you and your business limit risk and avoid conflict.