Partnership Liability Under Iowa Law

Business disputes sometimes arise among the members of a partnership or between one partner and the partnership itself.  The members of a partnership frequently execute a partnership agreement that governs the partners’ relationship.  The partners are generally free to structure their partnership however they wish.  But Iowa Code 486A.103 restricts to some extent the ability of partners to modify Iowa’s standard rules concerning partner access to information and the duties that partners owe to each other and to their partnerships.

Iowa Code 486A.403 provides Iowa’s rules governing partners’ access to partnership information.  A partnership must keep its books and records at its main business office.  Partners (including former partners) and their agents and attorneys are allowed access to partnership books and records.  The right of access provides the opportunity to inspect and copy books and records during ordinary business hours.  Among the documents that may be inspected or copied are any information concerning the partnership’s business and affairs reasonably required for the proper exercise of the partner’s rights and duties under the partnership agreement or Iowa’s partnership law, Iowa Code Chapter 486A, and any other information concerning the partnership’s business and affairs, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances.  A partnership may impose a reasonable charge, covering the costs of labor and material, for copies of documents furnished. 

Iowa Code 486A.404 sets the general standards for partner conduct towards the partnership and other partners.  Partners owe duties of loyalty and care.  Partners can be sued for breaching either type of duty owed the partnership or other partners.

The duty of loyalty requires partners to account to the partnership and hold as trustee for the partnership any property, profit, or benefit derived by the partner in the conduct and winding up of the partnership business or derived from a use by the partner of partnership property, including the appropriation of a partnership opportunity.  Loyalty also means that partners must refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a party having an interest adverse to the partnership andfrom competing with the partnership in the conduct of the partnership business before the dissolution of the partnership.

Proving breach of a partner’s duty of care requires more than establishing mere negligence.  That’s because a partner’s duty of care to the partnership and the other partners in the conduct and winding up of the partnership business is limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or a knowing violation of law.  Somewhat related, under Iowa partnership law partners must discharge their duties to the partnership and the other partners under Iowa Code Chapter 486A or under the partnership agreement and exercise any rights consistently with the obligation of good faith and fair dealing.