In Delaware, unless limited by the partnership agreement, a general partner has the fiduciary duty to manage the partnership in its best interest and in the best interests of the limited partners.[1] In Delaware, the law requires the general partners of limited partnerships to exercise their duty of care and to act in the best interest of the partnership and the limited partners.[2] The duty of the general partner in a limited partnership to exercise the utmost good faith, fairness, and loyalty is required both by statute and common law. The fiduciary duty of fair dealing owed by a general partner to a limited partner is no less than that owed by a corporate director to a shareholder.[3]
A general partner’s duties to limited partners are equivalent to the duties of care and loyalty that corporate directors owe to the corporation and its stockholders and the fiduciary duty of disclosure to stockholders.[4] A partnership’s purpose limits the general partner’s scope of authority and therefore sets out its fiduciary duties.[5] An agent has a duty to take action only “within the scope of the agent’s actual authority.[6] Because a general partner only has the authority to act in furtherance of the partnership’s purpose, it cannot owe a duty inconsistent with that purpose. Where a partnership agreement sets forth a specific purpose for the partnership and grants the general partner powers in furtherance of that purpose, the general partner has no authority to take an act contrary to that purpose, and so failure to take that act cannot be a breach of fiduciary duty.
Furthermore, a general partner’s fiduciary duties may be expressly modified by the limited partnership agreement. The Delaware Limited Partnership Act gives “maximum effect to the principle of freedom of contract and to the enforceability of partnership agreements.”[7] The exercise of determining the nature and scope of a general partner’s fiduciary duties is a contractual exercise, requiring the Court to consider “the reasonable shared expectations of the parties at the time they contracted.”[8] However, where a limited partnership agreement does not clearly and unequivocally eliminate or limit fiduciary duties, the general partner owes default fiduciary duties.[9] Moreover, DRULPA Section 17-1101(d) permits parties to “expand or restrict or eliminate” a general partner’s fiduciary duties “by provisions in the partnership agreement.”[10]
It is important to be wary of your duties as a partner of a Delaware partnership. For more information on the topics covered here today, or for services related to your specific situation, contact our knowledgeable corporate governance attorneys at (646) 766-8308 or email info@kilegal.com to get the help you need.
[1] JER Hudson GP XXI LLC v. DLE Inv’rs, LP, C. A. 2021-0478-MTZ (Del. Ch. 2022)) see also In re Boston Celtics Ltd. Pshp. Shareholders Litig., 1999 Del. Ch. LEXIS 166, 1999 WL 641902 (Del. Ch. August 6, 1999) (noting the general partner of a Delaware limited partnership has the fiduciary duty to manage the partnership in the partnership’s interests and the interests of the limited partners. Delaware law requires the general partners of limited partnerships to exercise due care and to act in the best interest of the partnership and the limited partners)
[2] Id.
[3] Boxer v. Husky Oil Co., 429 A.2d 995, 1981 Del. Ch. LEXIS 448 (Del. Ch. January 1, 1981))
[4] Dohmen v. Goodman, 234 A.3d 1161 (Del. 2020).
[5] Id.
[6] Id.
[7] 6 Del. C. § 17-1101(c). See also Brinckerhoff v. Enbridge Energy Co., 159 A.3d 242, 252 (Del. 2017) (noting drafters of a limited partnership agreement replace fiduciary duties with contractual obligations. If fiduciary duties have been validly eliminated, “the limited partners cannot rely on traditional fiduciary principles to regulate the general partner’s conduct.”)
[8] Cincinnati Bell Cellular Systems Co. v. Ameritech Mobile Phone Services of Cincinnati, Inc,
[9] Sonet v. Timber Co., LP, 722 A.2d 319 (Del. Ch. 1998))
[10] DRULPA Section 17-1101(d
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