In the November 9, 2017 edition of The Legal Intelligencer, Edward T. Kang, managing member of the firm, writes on limited partnerships and the rights afforded to the limited partners when the general partner deviates from its duty of care.
Limited partnerships offer an attractive option over the general partnership form–namely, the benefits of a partnership arrangement, but with limited liability like that enjoyed by the owners of a corporation or limited liability company. With that limited liability, however, also comes limited input into the management and operation of the company. The general partner(s) manage the company, while limited partners typically have no right to manage or otherwise direct the affairs of the partnership. That means, absent a specific agreement between the partners and the partnership, a limited partner is treated like a shareholder of a public corporation–that is, a limited partner’s right is limited to voting and distribution and must trust that the general partner will manage and operate the partnership in the best interest of the partnership.
But what rights do limited partners have, especially when the general partner deviates from its duty of care or duty of loyalty owed to the partnership? Does a limited partner have the right to bring a direct action against another partner or the partnership itself? In a corporation setting, typically, a corporate officer/director owes fiduciary duties not to shareholders/owners, but to the entity itself. And if a dispute occurs with officers or directors, a shareholder must usually file a derivative action on behalf of the company to address a breach of fiduciary duty by its officers and directors.