FIDUCIARY DUTY AS BUSINESS PARTNERS You’re partners with your homie in a real estate business, and split 50% of the profits made by the business. You ended up buying and selling a piece of real estate in the name of the partnership without your homie’s permission or knowledge, and you took 100% of the profits from the sale. Can your homie legally claim compensation from you? How much are they entitled to? For one, the profits received by you, must be paid over to the partnership. You owe a fiduciary duty to the partnership to not benefit yourself at its’ expense, meaning you can’t “compete” with the partnership and take a sales opportunity away from the partnership for your benefit. Your homie would be entitled to 50% of the proceeds, as per the agreement you guys made when you established the partnership. You would still be eligible to claim the other 50%, since it was part of that agreement. LIMITED LIABILITY PARTNERSHIP - RISKS You, the president of a manufacturer, contract a law firm to make major decisions for your firm. You’re not worried about them costing any money for bad decisions, because if they’re negligent, the firm’s insurance and the assets of its rich partners could satisfy any judgment in your favour. However, they’re now becoming a Limited Liability Partnership. Should you be concerned? What would you do about it? is ar stu ed d vi y re aC s o ou urc rs e eH w er as o. co m You should be concerned. Your company used to have recourse to the assets of all the partners of the firm based on a claim of professional negligence against one of the partners, which it now does not, now that it’s a limited liability partnership. It WOULD still have recourse to the assets of the firm, and the individual partner responsible for the professional negligence – the partners must maintain insurance against negligence claims. All of the partners still remain liable for torts (other than negligence), and breaches of trust (in some provinces). If your company feels it needs greater protection, you could argue that 1) your fees should be lower bc you’re assuming more risk, 2) that you need personal guarantees from partners to offset the newly increased risk, and 3) maybe change to a different firm that isn’t a LLP. PARTNERSHIP – RELIEF AFTER BEING LOCKED OUT You and your homie agree to open up a restaurant. Your homie donates his property worth 300k, and you put in $100k. You orally agree that your homie will manage the resto, and you will manage the books. You will also share the profits. After 3 months of renovations which you both oversaw together, the resto opens up and it’s not successful; neither of you two benefited financially from the operations. You two disagree on where to go next, and your homie locks you out. What is the nature of y’all two’s relationship? What relief can you seek? Even though there was no written agreement, yall are probably partners. Under provincial partnership statutes, a partnership is formed when 2+ people carry on business with a view to profit (view, not purpose. Neither of you profited). There is also evidence that you two were carrying on business together, and each of you contributed to the business, with your homie supervising the reno and donating her property. You also put in $100k, and oversaw the renovations too. One remedy is to dissolve the partnership, since yall are clearly done – you would have to give notice to your homie though. Afterwards, the assets of the resto would be used to pay off any outstanding debts, and if there was any money left it would be used to pay debts owed to partners, then capital contributions owed to partners, and whatever’s left would be seen as “profit” to be equally distributed afterwards. You COULD make the argument that you want your $100k to be paid back as a loan. You would also have a claim to a share of the partnership’s capital. Your homie could argue that the capital payout should be proportional (yall put in equal time, but his contribution was 3x yours, so they should get 75% of the payout). This mostly comes down to whether there was an implied agreement about how capital and interest should be rationed. Limited Partnerships – Liability Th You’re one of several partners for Comp X, Limited Partnership. You’re also the sole shareholder and president of Dildo Factory Incorporated, which is a general partner of Comp X. In your capacity as president of Dildo Factory Inc., you acted as manager of the limited partnership. On the ltd partnerships behalf, you negotiate a contract with Comp Y Ltd for $50k. They paid the $50k to Comp X,, but the limited partnership failed to do the services – they sue the ltd partnership and got a judgment for $50k, only to discover neither Comp X nor Dildo Factory have any assets. Can Comp Y seek the $50k from you? sh You’d think that you’re protected against personal liability in excess of your investment bc of your limited partner status; however, since you acted as manager of the ltd partnership, it must be determined whether in doing so, you lost your ltd liability by participating in control of the limited partnership. In a similar case, the court held that someone like you was liable. They said that any time a ltd partner was an employee, officer, or director of a corporate general partner, and took control of the business within their capacity, they would be liable personally as a general partner for the obligations of the partnership. An important factor here is that you’re a controlling shareholder for the general partner to Comp X. You then are liable, as sole shareholder. 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