1Partnership Law and Ethics Proposal
Ariel Nelson
Rasmussen University
B165/MAN1300 Section 01 Introduction to Human Resource Management
Instructor: Ana Penn
March 2, 2023
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The legal and ethical duties and responsibilities of general partnerships
Ideally, a general partnership entails a business arrangement where two or more people corun a business and therefore share all profits, assets, managerial, legal, and financial liabilities.
General partners share debt liabilities equally (Ademoroti, 2017). In a general partnership, the
partners have the legal duty and responsibility to act in each other’s best interests. Every partner in
a general partnership has the legal right to profits and losses, inspection, the right to legal action,
and even the right to share in decision-making and the company’s management.
Notably, legal and ethical duties and responsibilities are often collectively called fiduciary
duties and responsibilities. Firstly, general partners have the duty and responsibility to care and
disclosure. For general partners, the duty of care entails refraining from reckless, unlawful, and
negligent conduct regarding the business (Score, 2021). Under the duty of care, general partners
are expected to be reasonable and prudent when directing and managing their business. For
instance, a prudent and reasonable general partner would institute proper procedures and controls
for appropriate recordkeeping. According to Márta (2021), the duty of disclosure, per se, ensures
that the general partners about the commonly known and potential risks and benefits for every
situation to ensure that the other general partners make sound and well-informed decisions.
Additionally, general partners have the duty and responsibility to loyalty. This duty and
responsibilities allow the general partners to put business interests first before their interests. A
general partner cannot deviate from their partnership, as this would breach the general partnership’s
provisions. Further, general partners have the duty to good faith and fair dealings as well. Once a
general partner starts the negotiation to form a partnership, this marks the start of good faith and
fair dealing (Márta, 2021). Under this duty, general partners are expected to be fair and honest
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when conducting business connections of dealings. Even when the general partnership gets
strained, the general partners should stick to acting in good faith. The general partner needs to seek
consent from other partners before acting on behalf of the general partnership. Finally, general
partners have the legal duty to be liable for the contracts entered into by other general partners.
The legal and ethical duties and responsibilities of limited partnerships
A limited partnership occurs when two or more people go into business together; however,
the limited partners are liable only for the investment amount. (Score, 2021) This implies that the
limited partners cannot be held accountable beyond the amount invested in the business. The
limited partners lack the decision-making power and are not personally liable for the liabilities and
debts that businesses might run into. While one party, usually the general partner, has to control
the business’ assets. Also, the general partner in a limited partnership performs management
responsibilities, making major decisions on the business’s wellbeing (Balouziyeh, 2013). The
limited partners have the legal and ethical duties to disclose personal interests to prevent any
conflict of interests. Limited partners have the obligation not to compete with the business and not
to engage in the management of the business. To a large extent, a limited partner is responsible for
practicing honest and open communication that helps the partnership operate smoothly with little
conflicts.
The Option to Select
A general partnership has several benefits and shortcomings. In most instances, general
partnerships are preferable because they are easy to form as they require little formalities. Another
benefit is that general partnership allows the partners involved in the business to pass through
losses and profits to their income taxes (Balouziyeh, 2013). A disadvantage is that general
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partnerships provide little protection to the partners. All general partners, per se, are liable for debts
and legal issues arising from the business activities. The vulnerability and exposure to liabilities
are not good for business. Again, a general partnership is quite easy to dissolve. Without any
formal agreements, it becomes entirely easy for the general partnerships to be dissolved. In the
event of a partner’s death or exit, the partnership can easily be terminated (Ademoroti, 2017). The
transfer of interest is limited for general partners. They are not allowed to act in their interest to
make decisions but in the partnership’s interest.
For a limited partnership, a benefit for the limited partners is that their liability for legal
risks and debts is limited. A disadvantage is that the limited partners do not have a say in decisions
that pertain to the organization’s control or management. A limited partner is not allowed to involve
themselves in the daily operations and activities in the firm, lest they lose their status and become
general partners (Ademoroti, 2017). A disadvantage for general partners is that they bear the
greatest risk in the case of legal issues or risks. However, general partners have all the say in the
control and management of the business.
After this analysis, I would opt for a general partnership because of simplified taxes and
less paperwork. It is easier and generally less costly to set up a general partnership, and there is
equal distribution of contributions, liabilities, and responsibilities. I want to go for a partnership
that brings in as much input, effort, time, and energy as I do. In this case, a general partnership
would be ideal.
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References
Ademoroti, O. (2017). Taxation of Partners and Partnerships in
Nigeria. http://dx.doi.org/10.2139/ssrn.2965515
Balouziyeh, J. M. (2013). Partnerships. In A Legal Guide to United States Business
Organizations (pp. 33-44). Springer, Berlin, Heidelberg.
Márta, P. B. (2021). General Partnerships and the Fiduciary Duty in the US Legal System. Pro
Futuro, 10(4).
Score (2021). 4 Types of Business Partnerships: Which Is Best for You?
https://www.score.org/news/4-types-business-partnerships-which-best-you
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