Breach Of Duty In Partnership Agreement

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Principles and Risks of Partnerships, Trusts And Company Law

The partnership is largely based on the principles of trust, commitment and respect between the partners mutually agreed upon a goal and outcome. The partners identify their strengths and weakness and share their assets and capabilities for the business. The partners have a feedback mechanism aimed at improvement and accomplishment of results. They also have clear principles from running the business to sharing the profits to conflict resolution with the freedom to close the deed anytime they wish. Trust can either be an individual or group of a natural person or a company which is formed for the greater interest. The trust, as the name means, at no point in time is expected to wrong neither against the trustor its members nor in favor of a group. The trust always works with integrity, honesty, and freedom with all rights of its action reserved to the larger interest of its members. The trust will not own as an asset or be liable but the same will be under the names of the trustee. The company law defines a legal company as a separate legal entity with its name and signature. It is assumed to have a perpetual existence with a primary objective to make profits (Emerson, 2016).

Undoubtedly partnership is based on mutual trust and respect however that is often deemed to be the risky aspect in a business environment. The process of decision making to other partners contended often results in loss of time and opportunity. Since the partners most often share a personal relationship. Responsibility and accountability is a point of concern. Conflict resolution and logical decision making are most often missing. Trust works for the benefit of the investee, irrespective of the logic attached to it. Trust doesn’t aim at making profits or performing over and above the benchmark. Therefore most often the results are mediocre and average. Trust lacks liberty and freedom to take an individual decision. The overall resource and capacity available for the trust are minimal hence the scope for growth is also largely restricted. For today’s complicated business environment, corporate business law solves most of the issues and irregularities. However, they are not clear about risks. Due to large size and scope, the legal, social and technological complications are heavy leading to excessive drainage of resources. The extensive use of technology and scope for growth increases the pressure to be a success. The business requires large volumes of resources and efforts (Allison and Prentice, 2009).

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Legal Duties And Responsibility Of The Controllers

Legal duties as shareholders

As shareholders have a diligent and sensitive role to be played for the benefit and survival of the business. Irresponsible shareholders, like Sam and Rosa, can push the business to be insolvent (like how they have done) leaving other stakeholders in turbulence. Shareholders have to take sensible decisions during the appointment of a director, auditors and other important employees. The decision should be a focus on the interest of the business than on self-interest. They should share their experience and knowledge in financial and other important matters. There shouldn’t be any conflict of interest, whatsoever (Baron & Baron, 2003).

Legal duties as directors

The directors ought to work for the success and benefit of the company in good faith beyond their desires. The directors should strictly work within the framework of their roles and responsibilities. In case of any rules missing the MoA or AoA, the directors are expected to take independent decisions following the Corporate Law. They should act and take decisions with the utmost care, experience, and skill in business affairs. There should be no conflict of interest either for self or close family members. (Locker & Kienzler, 2000).

Legal duties as trustees

The trustee should perform his duties for the benefit of the beneficiaries and the trust. He should place the interest of the beneficiary than his or her trust. When making any investment decision, due skill and judgment should be used to ensure no expensive decisions are taken. He should take efforts (within his control) to safeguard the assets of the trust. He should be widely aware of his powers and responsibility to perform his duties better (Hamermesh & Sparks, 2005).

Legal duties as partners

The partners should disclose absolute and complete information of books of accounts. In case of any fraud, the partner is expected to compensate for the same. The partners should work for the common interest of the firm. In case of any personal profit earned or benefit enjoyed, the same has to be disclosed to the other partner. The partners have to be faithful and diligent. The firm’s property shouldn’t be treated as individual property (Abbott, Pendlebury and Wardman, 2013).

Breach Of Legal Duties

A partnership firm is owned and operated by partners who work for the benefit of each other. Though the partnership is a legal business structure the legal binding is limited and largely restricted. In case of breach of trust or partnership agreement, there is a limited legal resort for the partners and the stakeholders. In case the partnership agreement allows for, the partner who committed the breach can be expelled from the business. Along with this, he shall also be liable to make good of the loss. In case of refusal, he can be sued by the other partners. The partner should take care of the damage or loss (either implicit or explicit) for the business should be borne the compensatory charges. In case the damage is huge and irreversible, the innocent partner can demand liquidation charges. Though liquidation charge is a legal option the chances of winning the case are most often grim. Though there is a choice of law, most partners fearing cost, time and the resulting resort for personal compromise (Schindel, Dorrill, Christensen, Edkins, King, 2019).

The action of a breach can be committed by the trustee either individual or group. The most sought after the action is compensation from the trustee directly. Trustees are directly attached to the asset hence in case of a breach; he has to take full responsibility and ownership of the breach. In case of a breach that can be compensated, the trustee has to return the asset or pay the liability arising out of the breach (either to an insider or outsider). In case the damage is beyond repair, he has to be paying the damage in monetary terms. Even in case, the breach hasn’t resulted in an indirect loss, the trustee has to be penalized, as decided by the rest of the trustee. In case the trustee isn’t in a financial position to bear the loss, the properties of the trustee can be attached for the damage. Also, the committee can be withholding his trusteeship compensation. The trustee can be expulsed from the committee for committing the breach. Though there are legal complications and compliances, expulsion is still an available option. (Morley & Sitkoff, 2019).

As a shareholder, if he breaches the shareholder’s agreement there is certain action that can be taken by the corporation or other shareholders. (

A) The shareholder should be held good for the damages caused. In case the shareholder has directly affected the financial position of the business, he will be demanded to do good for the damage. He will be directly held responsible for the loss.

(B) As a shareholder, he has the power to cast his vote in important business decisions. In case the shareholder is found guilty of a breach, his voting rights can be restricted.

(C) A new shareholder agreement can be formed with the non-breaching shareholders avoiding the breaching shareholder/s. by doing so he will be kept away from any further breach

(D) a lawsuit can be sued against the shareholder demand legal actions.

(E) A resolution can be passed in the general body meeting for the removal of the breaching shareholder. He can be removed from the office either permanently or temporarily (Blair & Stout, 2017).

Conclusion

Increased technology and easy accessibility of information have tremendously transformed the nature and size of a legal breach. It is the duty of the business in specific and law, in general, to amend laws from time to time depending on the business environment. It is important to ensure the laws and a procedure are updated and leaves minimum gaps for the parties to commit fraud. It is critical for a business to largely concentrate on corporate governance and accurate financial reporting. The right combination of both of these elements will ensure a much protected and accurate corporate organization. Corporate governance will help businesses to establish a tight environment that will leave no scope for fraud and delusion. Corporate governance will focus on all operations of business leaving no scope for error. On the other hand, financial reporting will help in better maintenance of books of accounts giving accurate results of business operation. It will also help the business to understand any leakages at an early stage.

References

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