General or Limited Partnerships (LLPs)

Corporation, Limited Liability CompanyMark Anchor Albert and Associates has substantial experience and expertise litigating claims and defenses arising in connection with general or limited liability partnership (“LLPs”).

California Corporations Code section 16202 provides, in part: “[T]he association of two or more persons to carry on as coowners a business for profit forms a partnership, whether or not the persons intend to form a partnership.” California Corporations Code section 16305(a) provides: “A partnership is liable for loss or injury caused to a person, or for a penalty incurred, as a result of a wrongful act or omission, or other actionable conduct, of a partner acting in the ordinary course of business of the partnership or with authority of the partnership.”

Under traditional legal concepts the partnership is regarded as an aggregate of individuals with each partner acting as agent for all other partners in the transaction of partnership business, and the agents of the partnership act as agents for all of the partners. See Marshall v. International Longshoremen’s and Warehousemen’s Union (1962) 57 Cal. 2d 781, 783. The partners of a partnership typically are jointly and severally liable for the conduct and torts injuring a third party committed by one of the partners. See Black v. Sullivan (1975) 48 Cal. App.3d 557, 569. In determining whether a relationship such as that of partners has been created, California courts are guided not only by the spoken or written words of the contracting parties, but also by their acts. See Singleton v. Fuller (1953) 118 Cal. App. 2d 733, 740–741.

“It is essential, however, to the existence of a partnership that there be a community of interest and an agreement to share jointly in the profits and losses resulting from the enterprise.” Sandberg v. Jacobson (1967) 253 Cal.App.2d 663, 668.

The fiduciary duties of partners are codified in California Corporations Code section 16404 and consist of the duties of loyalty and care set forth in subdivisions (b) and (c) of section 16404.

The duty of loyalty includes: (i) to account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property or information, including the appropriation of a partnership opportunity; (ii) to refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership; and (iii) to refrain from competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.

A partner's duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.

Section 16404 also provides: that a partner shall discharge the duties to the partnership and the other partners under the Corporations Code or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing; that a partner does not violate a duty or obligation under the Corporations Code or under the partnership agreement merely because the partner’s conduct furthers the partner’s own interest; and, that a partner may lend money to and transact other business with the partnership, and as to each loan or transaction, the rights and obligations of the partner regarding performance or enforcement are the same as those of a person who is not a partner, subject to other applicable law.

The California Uniform Partnership Act also provides that a partner has an obligation of good faith and fair dealing in the discharge of his or her duties—as well as in the exercise of any rights—under the Act and under the partnership agreement. See Cal. Corp. Code § 16404(d). Partners must deal with each other in good faith. See, e.g., Leif v. Gunter (1983) 33 Cal.3d 508; Crouse v Brobeck, Phleger & Harrison (1998) 67 Cal.App.4th 1509.

While partners in a California partnership cannot waive or eliminate entirely the duties of loyalty or care or the obligation of good faith, their partnership agreement can define within limits the scope and standards by which fiduciary duties are to be measured. See, e.g., Cal. Corp. Code §16103(b).

You can rely on Mark Anchor Albert and Associates to protect and advance your interests with great skill in cases involving partnerships and LLPs.