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Business Disputes

What Your Business Partner Owes You: Fiduciary Duties Between Co-Owners

Nadine Deeb, Esq.By · Published · 18 min read

Updated November 2026 · Last legally reviewed November 2026

A brass plumb bob hanging on a copper cord over a cream ledger sheet, beside a folded cream paper, on a navy surface.

Your co-owner started a side company that sells to your customers. Or routed a contract to a vendor she owns. Or used the company account for something nobody approved. The question that follows, "what does my partner actually owe me?", has a statutory answer for general partnerships in Arizona, California and Texas and for LLCs in Arizona and California. For a Texas LLC the answer starts with the company agreement, because the Texas LLC statute states no default duty. In every case the answer depends on the kind of entity, on who manages it, and on what the owners' agreement says.

This post is for owners of LLCs and general partnerships in Arizona, California and Texas who are drafting an operating or partnership agreement, or who suspect a co-owner has crossed a line. It explains the duties of loyalty and care and the obligation of good faith as the statutes state them, who owes them in a member-managed and a manager-managed company, how far an agreement can change them in each state, and what to do when a dispute starts. It is general information, not an opinion on any dispute. For the agreement that should settle most of this before it matters, see our post on why your LLC needs an operating agreement.

The short answer

Does your co-owner owe you a fiduciary duty? Usually, yes. In a general partnership in all three states, each partner owes the partnership and the other partners a duty of loyalty and a duty of care, and must act in good faith. In an Arizona or California LLC, the members of a member-managed company, and the managers of a manager-managed company, owe the same duties by statute, and in a manager-managed company a member owes no fiduciary duty solely by being a member.

Texas's LLC statute takes a different approach: chapter 101 of the Business Organizations Code states no default duty of loyalty or care and lets the company agreement expand, restrict or eliminate whatever duties exist, so a Texas LLC owner's rights depend heavily on the agreement. In every state the agreement can change the duties, within limits that differ, and the limits are the part worth reading closely. One qualification to the "owes you" framing: these duties run to the company as well as to the other owners, and a wrong that harms the company does not necessarily give each owner a personal claim for damages. When a dispute starts, the agreement's own procedures and the company's records are usually the first things to review, though an owner can seek legal help, or court protection where rights are time-sensitive, at any point.

The duty of loyalty

The duty of loyalty is the one at the center of the scenarios that opened this post. The statutes that expressly define it (the Arizona and California LLC and partnership statutes and the Texas partnership statute) share three recurring components: a co-owner may not keep for themselves a profit, property or benefit that belongs to the company; may not deal with the company from the other side of the table, as or for someone whose interests are adverse to it; and may not compete with the company. The details differ by state, including how long the no-competition rule runs. Arizona's LLC statute says the duty "includes" accounting to the company and holding "as trustee for the company any property, profit or benefit" the member is not entitled to, including anything derived "[f]rom the appropriation of a company opportunity"; refraining from dealing with the company "as or on behalf of a person having an interest adverse to the company"; and refraining "from competing with the company in the conduct of the company's activities and affairs before the dissolution of the company."1 Arizona adds an express duty to disclose "[a]ny material conflict of interest" and the material facts around it to members considering or voting on a decision or transaction.2

California's LLC statute states the same three components but says the duty "is limited to" them, and its competition clause runs through "the conduct or winding up of the activities" of the company rather than ending at dissolution.8 Arizona and California partners owe a loyalty duty of the same shape, including a partner's use of partnership property and "the appropriation of a partnership opportunity," with the pre-dissolution endpoint on competition; Arizona's partnership statute says the duty "is limited to" its three listed parts, while California's says it "includes" them and reaches benefits derived from a use of "partnership property or information."610 Texas partners' duty of loyalty "includes" accounting for benefits derived in the business or from partnership property, refraining from dealing with the partnership on behalf of an adverse party, and "refraining from competing or dealing with the partnership in a manner adverse to the partnership"; the Texas list has no separate business-opportunity clause and no dissolution endpoint.16

One limit is written into each of the five duty-defining statutes: a co-owner "does not violate a duty or obligation" merely because the co-owner's conduct "furthers the member's own interest" or the partner's own interest.3681015 Under these provisions, negotiating hard over your own distribution is not, by itself, a breach. The statutes also let the owners approve a conflicted transaction in advance or after the fact (the statutes call the latter ratifying it), generally after the material facts are disclosed; that is covered under Ratification below.

The duty of care

The duty of care sets the standard for mistakes. In an Arizona or California LLC, and in an Arizona or California partnership, the duty is a gross-negligence standard. Arizona's LLC statute states it as a duty "to refrain from engaging in grossly negligent or reckless conduct or wilful or intentional misconduct";1 California's adds "a knowing violation of law" to the list.8 Arizona partners owe a duty of care "limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct or a knowing violation of law," and California's wording is parallel.610 A bad outcome alone does not establish a breach under these statutes; the question is whether the conduct was grossly negligent, reckless, intentional misconduct or, where the statute lists it, a knowing violation of law. Honest intent is not a complete answer either: a decision can be made honestly and still be grossly negligent or reckless.

Texas partners are held to a different, ordinarily-prudent-person standard. A Texas partner's duty of care is "to act in the conduct and winding up of the partnership business with the care an ordinarily prudent person would exercise in similar circumstances," though "[a]n error in judgment does not by itself constitute a breach of the duty of care," and a partner who acts on an informed basis, in good faith and in a manner the partner reasonably believes to be in the partnership's best interest "is presumed to satisfy the duty of care."17

Good faith

Each of the duty-defining statutes discussed above adds an obligation of good faith to the fiduciary duties; Texas's LLC chapter, covered below, states none. Arizona's LLC statute requires members and managers to act "consistently with the contractual obligation of good faith and fair dealing";34 California's LLC statute requires acts "consistent with the obligation of good faith and fair dealing," which its operating-agreement section calls "the contractual obligation of good faith and fair dealing";89 and the Arizona and California partnership statutes use "the obligation of good faith and fair dealing."610 A Texas partner must act "in good faith" and "in a manner the partner reasonably believes to be in the best interest of the partnership," and the statute adds that a partner "is not a trustee and is not held to the standards of a trustee."15

Who owes the duties

General partnerships. Every partner. Arizona's statute says "[t]he only fiduciary duties a partner owes to the partnership and the other partners are the duty of loyalty and the duty of care";6 California's partnership statute says the fiduciary duties a partner owes "are the duty of loyalty and the duty of care," without Arizona's word "only";10 Texas's lists the same two duties, owed also to a deceased partner's transferee.15 If two people run a business together without forming an entity, and their arrangement amounts to a general partnership under the applicable state's law, these default duties apply to both of them; our post on what the default rules say when there is no written partnership agreement explains how that happens.

Member-managed LLCs. Arizona's statute says "[a] member of a member-managed limited liability company owes to the company and the other members the duties of loyalty and care," and California's wording is parallel.18

Manager-managed LLCs. In Arizona and California, the managers owe the company and the members the duties of loyalty and care, and good faith and fair dealing binds members and managers alike.48 A member, in Arizona's words, "does not have any fiduciary duty to the company or to any other member solely by reason of being a member," and California's wording is parallel.48 Arizona's statute adds that whether such a member owes duties "depends on the extent to which the member controls or participates in the management or the affairs of the company."4 An investor-member who takes no part in management is in a different position from a member who runs the company without the title.

In Texas, whether managers or members are the company's "governing authority" depends on the company agreement or, failing that, the certificate of formation,19 and the duties they owe are the subject of the next section.

Texas LLCs are different

Chapter 101 of the Texas Business Organizations Code, which governs LLCs, does not state a duty of loyalty or a duty of care for members or managers. Its provision on the subject, § 101.401, refers to "any duties, including fiduciary duties, and related liabilities that a member, manager, officer, or other person has to the company or to a member or manager of the company," and says the company agreement "may expand, restrict, or eliminate" them.12 Section 101.401 was amended in 2025 (S.B. 29, effective May 14, 2025); its current text, quoted above, includes "or eliminate."12 A 2025 good-faith presumption for governing persons applies by its terms only to an LLC with voting interests listed on a national securities exchange, though any LLC may adopt a provision with the same effect in its company agreement, and describes the duties it presumes compliance with as those "required under common law or the governing documents of the limited liability company."20

Three practical consequences follow. First, in a Texas LLC the company agreement is the starting point for the duties the owners owe each other; how much depends on the agreement and how much on non-statutory law turns on what the agreement says, and this post does not analyze the non-statutory law. Second, the list of Texas LLC provisions that cannot be waived in a company agreement does not include § 101.401 or any duty provision,13 so a Texas company agreement has more room to restrict duties and related liabilities than a California operating agreement has, and more than Arizona's good-faith and willful-misconduct floors allow. That is a statement about contractual flexibility, not a blanket release: §§ 101.052 and 101.054 give the company agreement substantial room, they do not say that every limit on conduct or liability disappears, and this post does not treat them as immunity for misconduct. Third, Texas supplies a statutory safe harbor for contracts between the company and an interested governing person or officer: an otherwise valid and enforceable contract or transaction remains valid and enforceable if the material facts are disclosed and the disinterested governing persons or the members approve it in good faith, or if it "is fair to the company" when approved, and when one of those conditions is met the company and its members have no claim "for breach of duty" based on the interest.14

What the agreement can change

In every state the owners' agreement governs relations among the owners, and the statute fills the gaps.579111318 How far the agreement can go differs.

Arizona. An operating agreement may provide that the duties of a member or manager, "including the duty of care, the duty of loyalty and any other fiduciary duty," are "expanded, limited or eliminated," and may limit or eliminate liability for breaching them.5 The floors are narrow: the agreement may not "[e]liminate the contractual obligation of good faith and fair dealing or the duty to refrain from wilful or intentional misconduct," or limit liability for either.5 The agreement may specify a method for authorizing or ratifying conflicted acts, but "[a] general provision in an operating agreement that provides for management by one or more members or managers, without more, is not sufficient" to do so.5 It may also define the duties to be the same as those of a corporate director, officer or shareholder.5 An Arizona partnership agreement, by contrast, "shall not" eliminate the duty of loyalty, the duty of care or the obligation of good faith and fair dealing, though it may identify categories of activity that do not violate the duty of loyalty and prescribe the standards for measuring care and good faith.7

California. An operating agreement may not "eliminate the duty of loyalty, the duty of care, or any other fiduciary duty," may not eliminate the obligation of good faith and fair dealing, and may not "[u]nreasonably reduce the duty of care."9 It may identify "specific types or categories of activities that do not violate the duty of loyalty, if not manifestly unreasonable," and may set the number or percentage of members who can ratify a conflicted transaction after full disclosure.9 The no-elimination rule is expressly subject to one reallocation exception: in a member-managed LLC, to the extent the operating agreement "expressly relieves a member of a responsibility that the member would otherwise have" under the statute and "imposes the responsibility on one or more other members," it may, for the relieved member's benefit, "also eliminate or limit any fiduciary duty that would have pertained to the responsibility."9 So the contrast with Arizona is real but not absolute. Fiduciary duties "shall only be modified in a written operating agreement with the informed consent of the members," and simply being deemed to assent to the agreement on joining "shall not constitute informed consent."9 An agreement may limit liability for money damages, but not for breach of the duty of loyalty, an improper financial benefit, excess distributions, intentional harm or an intentional criminal violation.9 The California partnership statute has parallel limits on the duties themselves: a partnership agreement may not eliminate the duty of loyalty (though, if not manifestly unreasonable, it may identify permitted categories of activity and provide for ratification after full disclosure), may not "[u]nreasonably reduce the duty of care," and may not eliminate the obligation of good faith and fair dealing.11

Texas. For LLCs, see the previous section: the company agreement may expand, restrict or eliminate the duties.12 Section 152.002(b) provides that a general partnership agreement may not eliminate the duty of loyalty, the duty of care or the obligation of good faith, subject to the qualifications described in the rest of this paragraph; the same section allows the agreement to identify permitted categories of activity and set measuring standards "if the standards are not manifestly unreasonable."18 Two provisions qualify that prohibition. Section 152.002(e) lets a limited partnership's agreement expressly eliminate any or all of those duties, and § 152.006, added in 2025 (S.B. 29, effective May 14, 2025), makes that subsection apply "only to a partnership that has a class or series of partnership interests listed on a national securities exchange" while adding that it "may not be construed as prohibiting any partnership from adopting, in its partnership agreement, provisions that duplicate the effect" of it, "regardless of whether the partnership has a class or series of partnership interests listed on a national securities exchange."1821 How far a closely held general partnership can use that route is a drafting question this post does not analyze.

Ratification and the fairness defense

The statutes also say how the owners can authorize or ratify a conflicted transaction so that it does not, by itself, support the loyalty claim the statute names. In an Arizona member-managed LLC, all the members "may authorize or ratify, after disclosure of all material facts," a specific act or category of acts "that otherwise would violate the duty of loyalty," and it is "a defense" to a self-dealing or non-disclosure claim "that the transaction or decision was fair to the limited liability company."3 All of the partners of an Arizona partnership, or a lesser number or percentage set in the partnership agreement, may likewise authorize or ratify an act that would otherwise breach a fiduciary duty.6 California's operating-agreement statute lets the agreement specify the member vote that ratifies a loyalty conflict after full disclosure,9 and Texas's § 101.255 safe harbor starts from an otherwise valid and enforceable transaction and is satisfied if "any one of the following conditions is satisfied": the material facts are disclosed to or known by the company's governing authority, which "in good faith authorizes the contract or transaction by the approval of the majority of the disinterested governing persons"; the material facts are disclosed to or known by the members, who "in good faith approve the contract or transaction by vote of the members," a route the statute does not condition on the voting members being disinterested; or the transaction "is fair to the company" when it is authorized, approved or ratified. The protection is limited to breach-of-duty claims based on the person's relationship or interest.14 Authorization, ratification or fairness addresses the duty claim the statute describes; it does not necessarily validate every aspect of a transaction or defeat unrelated claims. The lesson for owners on both sides of a conflict: disclose, document the approval, and follow whatever method the agreement specifies.

If you think a co-owner crossed the line

  1. Start with the agreement. It may have expanded, limited or eliminated the duty in question, set a ratification method, or required a notice, meeting or mediation step before anything else.
  2. Preserve the records you are entitled to see. Bank and card statements, contracts with the vendor or customer involved, and the company's books, to the extent the agreement and the statute give you access to them. Keep them as they are and keep copies of what you may lawfully copy; being an owner is not unrestricted permission to open or copy every company record. Preserve those records intact and do not alter or delete anything, and get advice before deciding when any relevant record can be discarded. Separately, and before you get advice, do not change passwords, block the company's accounts or lock anyone out, because self-help can create claims against you. Our partnership dispute guide covers that risk.
  3. Put the concern in writing. A measured letter that identifies the transaction, asks for the facts and proposes a resolution gives the other side a chance to explain.
  4. Consider the exits. A buyout, a change in management or a planned separation is sometimes the real remedy. Our posts on the buy-sell agreement and what happens when a co-founder leaves cover those paths, and our business and partnership disputes page describes how we approach resolution.
  5. Get advice when you need it, not after a checklist. Claims for breach of fiduciary duty exist in each state. The steps above are a resolution-first path, not a required sequence: an owner may seek legal help, or court protection where rights are time-sensitive, at any point. The firm does not handle litigation; if a matter has to go to court, it is referred to litigation counsel.

Questions to settle before you sign the agreement

  1. Is the company member-managed or manager-managed, and does everyone understand which owners owe fiduciary duties as a result?
  2. Does the agreement expand, limit or eliminate the duties of loyalty and care, and is that what the owners intend?
  3. Which activities are expressly permitted, such as owning other businesses, investing in competitors or doing business with the company?
  4. What is the procedure for disclosing a conflict and approving a related-party transaction, and who votes?
  5. In California, is any modification of the duties set out in a written operating agreement adopted with the members' informed consent, as the statute requires, and is that consent documented, as we recommend?
  6. In Texas, does the company agreement state the duties at all, or leave them to non-statutory law?
  7. What happens when an owner breaches: a buyout, a forced sale, mediation, arbitration or court?

What this post does not cover

This post does not cover the duties of directors and officers of a corporation, limited partnerships or exchange-listed partnerships beyond the Texas provisions noted, the duties that apply during a winding up, information and inspection rights, derivative claims, the measure of damages, or the non-statutory law that may supply duties in a Texas LLC. It does not say whether any particular conduct breached a duty. For the agreements that set these terms, see our posts on the founders' agreement, ten ways to protect yourself in a 50/50 partnership, partnership versus LLC and LLC versus corporation.

How we can help

Accord & Shield Legal drafts and amends operating agreements and partnership agreements that define what co-owners owe each other, and helps owners in Arizona, California and Texas work through a concern about a co-owner's conduct by reviewing the agreement and the records, negotiating a resolution, and planning a separation or buyout where that is the answer. To better understand the scope of your matter, you can schedule an initial consultation. The consultation is evaluation-only; no legal advice is provided. Representation begins only after an engagement agreement is signed and any required retainer is received. Please do not send confidential or sensitive documents before we confirm that we can assist.

This article is general information, not legal advice. Reading it does not create an attorney-client relationship. Whether a co-owner owes or breached a duty depends on the entity, the agreement, the conduct and the governing law; consult an attorney about your situation.

Citations

  1. A.R.S. § 29-3409(A)-(C), read on azleg.gov 2026-11-05, https://www.azleg.gov/ars/29/03409.htm ↩︎1↩︎2↩︎3
  2. A.R.S. § 29-3409(B)(4), (R), read on azleg.gov 2026-11-05, https://www.azleg.gov/ars/29/03409.htm ↩︎
  3. A.R.S. § 29-3409(D)-(G), read on azleg.gov 2026-11-05, https://www.azleg.gov/ars/29/03409.htm ↩︎1↩︎2↩︎3
  4. A.R.S. § 29-3409(I), (K), (L), (Q), read on azleg.gov 2026-11-05, https://www.azleg.gov/ars/29/03409.htm ↩︎1↩︎2↩︎3↩︎4
  5. A.R.S. § 29-3105(A)(3), (C)(5)-(6), (D)(1)-(3), (E), read on azleg.gov 2026-11-05, https://www.azleg.gov/ars/29/03105.htm ↩︎1↩︎2↩︎3↩︎4↩︎5
  6. A.R.S. § 29-1034(A)-(E), (H), read on azleg.gov 2026-11-05, https://www.azleg.gov/ars/29/01034.htm ↩︎1↩︎2↩︎3↩︎4↩︎5↩︎6
  7. A.R.S. § 29-1003(A), (B)(3)-(5), read on azleg.gov 2026-11-05, https://www.azleg.gov/ars/29/01003.htm ↩︎1↩︎2
  8. Cal. Corp. Code § 17704.09(a)-(f), read on California Legislative Information 2026-11-05, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=17704.09.&lawCode=CORP ↩︎1↩︎2↩︎3↩︎4↩︎5↩︎6↩︎7
  9. Cal. Corp. Code § 17701.10(a)-(b), (c)(4)-(5), (c)(14)-(15), (e)-(g), read on California Legislative Information 2026-11-05, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=17701.10.&lawCode=CORP ↩︎1↩︎2↩︎3↩︎4↩︎5↩︎6↩︎7↩︎8
  10. Cal. Corp. Code § 16404(a)-(e), read on California Legislative Information 2026-11-05, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=16404.&lawCode=CORP ↩︎1↩︎2↩︎3↩︎4↩︎5
  11. Cal. Corp. Code § 16103(a), (b)(3)-(5), read on California Legislative Information 2026-11-05, https://leginfo.legislature.ca.gov/faces/codes_displaySection.xhtml?sectionNum=16103.&lawCode=CORP ↩︎1↩︎2
  12. Tex. Bus. Orgs. Code § 101.401 and its source note, read on Texas Constitution and Statutes 2026-11-05, https://statutes.capitol.texas.gov/Docs/BO/htm/BO.101.htm#101.401 ↩︎1↩︎2↩︎3
  13. Tex. Bus. Orgs. Code §§ 101.052(a)-(c), 101.054(a), read on Texas Constitution and Statutes 2026-11-05, https://statutes.capitol.texas.gov/Docs/BO/htm/BO.101.htm#101.052 ↩︎1↩︎2
  14. Tex. Bus. Orgs. Code § 101.255(b), (e), read on Texas Constitution and Statutes 2026-11-05, https://statutes.capitol.texas.gov/Docs/BO/htm/BO.101.htm#101.255 ↩︎1↩︎2
  15. Tex. Bus. Orgs. Code § 152.204(a)-(d), read on Texas Constitution and Statutes 2026-11-05, https://statutes.capitol.texas.gov/Docs/BO/htm/BO.152.htm#152.204 ↩︎1↩︎2↩︎3
  16. Tex. Bus. Orgs. Code § 152.205, read on Texas Constitution and Statutes 2026-11-05, https://statutes.capitol.texas.gov/Docs/BO/htm/BO.152.htm#152.205 ↩︎
  17. Tex. Bus. Orgs. Code § 152.206, read on Texas Constitution and Statutes 2026-11-05, https://statutes.capitol.texas.gov/Docs/BO/htm/BO.152.htm#152.206 ↩︎
  18. Tex. Bus. Orgs. Code § 152.002(a), (b)(2)-(4), (e), read on Texas Constitution and Statutes 2026-11-05, https://statutes.capitol.texas.gov/Docs/BO/htm/BO.152.htm#152.002 ↩︎1↩︎2↩︎3
  19. Tex. Bus. Orgs. Code § 101.251(a)-(b), read on Texas Constitution and Statutes 2026-11-05, https://statutes.capitol.texas.gov/Docs/BO/htm/BO.101.htm#101.251 ↩︎
  20. Tex. Bus. Orgs. Code § 101.256(a), (c), read on Texas Constitution and Statutes 2026-11-05, https://statutes.capitol.texas.gov/Docs/BO/htm/BO.101.htm#101.256 ↩︎
  21. Tex. Bus. Orgs. Code § 152.006(a)-(b) and its source note, read on Texas Constitution and Statutes 2026-11-05, https://statutes.capitol.texas.gov/Docs/BO/htm/BO.152.htm#152.006 ↩︎

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