Let’s start with some definitions. What is a partnership? New York law defines a partnership as “an association of two or more persons to carry on as co-owners a business for profit.”[1] And, what is a joint venture? A joint venture is a limited partnership which is not limited in a statutory sense as to liability, but with respect to scope and duration.[2] Under New York law, joint ventures and partnerships are governed by the same rules.[3] Partnerships and joint ventures may be formed by express, written agreements, which explicitly identify and define the roles, rights, and duties of the parties.[4] They also may be formed by oral agreement or be implied from the parties’ conduct, even if the parties have never used the word “partner” or “partnership” to describe their relationship.[5]
Partnerships and joint ventures give rise to fiduciary duties.[6] Under the Partnership Law, partners are accountable to one another as fiduciaries. In the seminal case known as Meinhard v. Salmon, Justice Cardozo famously described the nature of the fiduciary relationship between partners and joint adventurers. He noted that:
Joint adventurers, like copartners, owe to one another, while the enterprise continues, the duty of the finest loyalty. Many forms of conduct permissible in a workaday world for those acting at arm’s length, are forbidden to those bound by fiduciary ties. A trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sensitive, is then the standard of behavior.[7]
Generally, in a partnership or a joint venture, each member is vicariously liable for the wrongful conduct of another member if the wrongful conduct occurs within the scope and course of the affairs of the partnership or joint venture.[8] Therefore, each member of a partnership or joint venture will be liable for personal injuries caused by another member’s negligence if the negligence occurs within the scope and course of the affairs of the business.[9]Furthermore, it is important to note that a person admitted as a partner into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, except that his liability shall be satisfied only out of partnership property.[10]
Duties of a Partner in a New York Limited Liability Partnership
The New York State Partnership Law governs New York LLPs.[11] New York permits LLPs to be formed only for professionals who are authorized to render professional services within New York.[12]
Under the laws of the State of New York, each partner of a registered limited liability partnership is not personally liable for debts, obligations and liabilities of the firm, except that each partner of a registered limited liability partnership remains personally and fully liable and accountable for any negligent or wrongful act or misconduct committed by him or her or by any person under his or her direct supervision and control while rendering professional services on behalf of the firm or as otherwise provided by the laws governing registered limited liability partnerships.[13] Nonetheless, “each partner, employee or agent of a partnership which is a registered limited liability partnership shall be personally and fully liable and accountable for any negligent or wrongful act or misconduct committed by him or her or by any person under his or her direct supervision and control while rendering professional services on behalf of such registered limited liability partnership.”[14]
It is important to be wary of your duties and potential liability as a member or partner of a New York partnership, joint venture, and/or limited liability 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 us to get the help you need.
[1] N.Y. Partnership Law§ 10(1).
[2] Ross v. Willett, 76 Hun 211, 213, 27 N.Y. Supp. 785, 786 (1st Dep’t 1895);
[3] Id.
[4] N.Y. Partnership Law§ 10(1).
[5] Id.
[6] Meinhard v. Salmon, 249 N. Y. 458, 463-64 (1928).
[7] Id. at 463-64.
[8] https://law.onecle.com/new-york/partnership/article-8/index.html
[9] Id.
[10] N.Y. Partnership Law § 28
[11] www.citybarjusticecenter.org/wp-content/uploads/2016/09/CBJC-NELP-LLP-Formation-Fact-Sheet.pdf
[12] Id.
[13] New York Partnership Law §26(b)
[14] N.Y. Partnership Law §26(c)
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