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In this article, our Iowa business attorneys discuss liability and proper conduct between partners in an Iowa partnership and answer the following questions:
- What is a partnership under Iowa law?
- Does the partnership agreement determine liability?
- What are the rules for equal access to information under Iowa partnership law?
- What duties do partners owe to the partnership under Iowa partnership law
What is a Partnership Under Iowa Law?
A partnership is a legal form of business operation entered into between two or more people. Partnerships make up a significant portion of the business entities in Iowa. The ability to structure the partnership with how the partners see fit through a partnership agreement and the various tax incentives available for each type of partnership makes it an ideal form of business entity. Partnerships come in three different forms: general partnerships (GP), limited liability partnerships (LLP), and limited partnerships (LP). All three types of partnerships are pass-through entities, meaning the income earned by the business, and thus the partners, is considered the owner’s personal income for tax purposes. If you are interested in setting up a Limited Partnership in Iowa read our article.
Does the Partnership Agreement Determine Liability?
It’s not uncommon for business disputes to arise between the principles of a partnership. Iowa partnership law accounts for certain disputes, liability, and access to information, but the best way to avoid major disputes that throw partnership liability into question is to execute a partnership agreement that will govern the partners’ relationship. The partners can structure the agreement however they see fit, but there are certain rules that Iowa partnership law places on modifying partner access to information and the duties that partners owe to each other and the partnership. The partnership agreement will be the primary document referenced should a disagreement end up in court, questioning one or more partners’ conduct and/or liability.
What are the Rules For Equal Access to Information Under Iowa Partnership Law?
Iowa code 486.403A describes the rules governing partners’ access to information in a partnership. As mentioned above the partnership agreement can stipulate guidelines for each partner to follow, but with reference to accessing the information the agreement is limited by the following regulations:
- The partnership must keep its records and books at the main office;
- Partners and former partners are always allowed access to the partnership’s records, as well as the partner’s attorney and applicable agents;
- Access to records and books should be during normal business hours;
- Access to records and books and the copying and/or inspection of those records and books is limited only by the exercise of the partner’s duties and rights under the partnership agreement, Iowa partnership law, and the extent to which the demand for such records would be unreasonable or otherwise improper for the given circumstances;
- Reasonable fees may be levied by the partnership for the inspecting and copying of files.
What Conduct and Duties Do Iowa Partners Owe to the Partnership Under Iowa Partnership Law?
Duties and conduct owed to the partnership by the partner under Iowa partnership law fall into two categories: loyalty and care. They are covered in Iowa code 486A.404 and include:
- Each partner must be accountable to hold as trustee for the partnership any property, profit, or benefit derived by the partner in normal use of the partnership business and/or partnership property;
- The partner must not deal with the partnership or conduct business in a way that is directly adverse to the partnership, deals with another business entity that is directly at odds with the partnership, or has interests adverse to the partnership unless done so after the dissolution of the partnership.
- A partner must refrain from conducting business in a way that is grossly negligent, reckless, or in direct violation of the law; and
- The partner can conduct business in a way that only further’s the partner’s own interests as long as that behavior does not violate the stipulations laid out in the partnership agreement or Iowa partnership law.
Violating the stipulations written in a partnership agreement or the rules set forth in Iowa partnership law may render a partner liable for any damages that occur as a result of the behavior. If you feel that a violation has occurred at your place of business, need defense against a potential allegation, or just have questions about structuring your partnership agreement give our office a call at 563-503-6910 and speak with one of our experienced Iowa business attorneys.
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