Relations of Partners to Each Other and to Partnership

R.I. Gen. Laws tit. 7, ch. 7-12.1, art. 4

in effect

R.I. Gen. Laws § 7-12.1-401 Partner’s rights and duties.

7-12.1-401. Partner’s rights and duties. (a) Each partner is entitled to an equal share of the partnership distributions and, except in the case of a limited liability partnership, is chargeable with a share of the partnership losses in proportion to the partner’s share of the distributions. (b) A partnership shall reimburse a partner for any payment made by the partner in the course of the partner’s activities on behalf of the partnership, if the partner complied with this section and § 7-12.1-409 in making the payment. (c) A partnership shall indemnify and hold harmless a person with respect to any claim or demand against the person and any debt, obligation, or other liability incurred by the person by reason of the person’s former or present capacity as a partner, if the claim, demand, debt, obligation, or other liability does not arise from the person’s breach of this section or § 7-12.1-407 or 7-12.1-409. (d) In the ordinary course of its business, a partnership may advance reasonable expenses, including attorneys’ fees and costs, incurred by a person in connection with a claim or demand against the person by reason of the person’s former or present capacity as a partner, if the person promises to repay the partnership if the person ultimately is determined not to be entitled to be indemnified under subsection (c) of this section. (e) A partnership may purchase and maintain insurance on behalf of a partner against liability asserted against or incurred by the partner in that capacity or arising from that status even if, under § 7-12.1-105(c)(7), the partnership agreement could not eliminate or limit the person’s liability to the partnership for the conduct giving rise to the liability. (f) A partnership shall reimburse a partner for an advance to the partnership beyond the amount of capital the partner agreed to contribute. (g) A payment or advance made by a partner which gives rise to a partnership obligation under subsection (b) or (f) of this section constitutes a loan to the partnership which accrues interest from the date of the payment or advance. (h) Each partner has equal rights in the management and conduct of the partnership’s business. (i) A partner may use or possess partnership property only on behalf of the partnership. (j) A partner is not entitled to remuneration for services performed for the partnership, except for reasonable compensation for services rendered in winding up the business of the partnership. (k) A difference arising as to a matter in the ordinary course of business of a partnership may be decided by a majority of the partners. An act outside the ordinary course of business of a partnership and an amendment to the partnership agreement may be undertaken only with the affirmative vote or consent of all the partners. P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.

R.I. Gen. Laws § 7-12.1-402 Becoming partner.

7-12.1-402. Becoming partner. (a) Upon formation of a partnership, a person becomes a partner under § 7-12.1-202(a). (b) After formation of a partnership, a person becomes a partner: (1) As provided in the partnership agreement; (2) As a result of a transaction effective under Article 11 of this chapter; or (3) With the affirmative vote or consent of all the partners. (c) A person may become a partner without: (1) Acquiring a transferable interest; or (2) Making or being obligated to make a contribution to the partnership. P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.

R.I. Gen. Laws § 7-12.1-403 Form of contribution.

7-12.1-403. Form of contribution. A contribution may consist of property transferred to, services performed for, or another benefit provided to the partnership or an agreement to transfer property to, perform services for, or provide another benefit to the partnership. P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.

R.I. Gen. Laws § 7-12.1-404 Liability for contribution.

7-12.1-404. Liability for contribution. (a) A person’s obligation to make a contribution to a partnership is not excused by the person’s death, disability, termination, or other inability to perform personally. (b) If a person does not fulfill an obligation to make a contribution other than money, the person is obligated at the option of the partnership to contribute money equal to the value of the part of the contribution which has not been made. (c) The obligation of a person to make a contribution may be compromised only by the affirmative vote or consent of all the partners. If a creditor of a limited liability partnership extends credit or otherwise acts in reliance on an obligation described in subsection (a) of this section without knowledge or notice of a compromise under this subsection, the creditor may enforce the obligation. P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.

R.I. Gen. Laws § 7-12.1-405 Sharing of and right to distributions before dissolution.

7-12.1-405. Sharing of and right to distributions before dissolution. (a) Any distribution made by a partnership before its dissolution and winding up must be in equal shares among partners, except to the extent necessary to comply with a transfer effective under § 7-12.1-503 or charging order in effect under § 7-12.1-504. (b) Subject to § 7-12.1-701, a person has a right to a distribution before the dissolution and winding up of a partnership only if the partnership decides to make an interim distribution. (c) A person does not have a right to demand or receive a distribution from a partnership in any form other than money. Except as otherwise provided in § 7-12.1-806, a partnership may distribute an asset in kind only if each part of the asset is fungible with each other part and each person receives a percentage of the asset equal in value to the person’s share of distributions. (d) If a partner or transferee becomes entitled to receive a distribution, the partner or transferee has the status of, and is entitled to all remedies available to, a creditor of the partnership with respect to the distribution. However, the partnership’s obligation to make a distribution is subject to offset for any amount owed to the partnership by the partner or a person dissociated as partner on whose account the distribution is made. P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.

R.I. Gen. Laws § 7-12.1-406 Limitations on distributions by limited liability partnership.

7-12.1-406. Limitations on distributions by limited liability partnership. (a) A limited liability partnership may not make a distribution, including a distribution under § 7-12.1-806, if after the distribution: (1) The partnership would not be able to pay its debts as they become due in the ordinary course of the partnership’s business; or (2) The partnership’s total assets would be less than the sum of its total liabilities plus the amount that would be needed, if the partnership were to be dissolved and wound up at the time of the distribution, to satisfy the preferential rights upon dissolution and winding up of partners and transferees whose preferential rights are superior to the rights of persons receiving the distribution. (b) A limited liability partnership may base a determination that a distribution is not prohibited under subsection (a) of this section on: (1) Financial statements prepared on the basis of accounting practices and principles that are reasonable in the circumstances; or (2) A fair valuation or other method that is reasonable under the circumstances. (c) Except as otherwise provided in subsection (e) of this section, the effect of a distribution under subsection (a) of this section is measured: (1) In the case of a distribution as defined in § 7-12.1-102(5)(i), as of the earlier of: (i) The date money or other property is transferred or debt is incurred by the limited liability partnership; or (ii) The date the person entitled to the distribution ceases to own the interest or rights being acquired by the partnership in return for the distribution; (2) In the case of any other distribution of indebtedness, as of the date the indebtedness is distributed; and (3) In all other cases, as of the date: (i) The distribution is authorized, if the payment occurs not later than one hundred twenty (120) days after that date; or (ii) The payment is made, if the payment occurs more than one hundred twenty (120) days after the distribution is authorized. (d) A limited liability partnership’s indebtedness to a partner or transferee incurred by reason of a distribution made in accordance with this section is at parity with the partnership’s indebtedness to its general, unsecured creditors, except to the extent subordinated by agreement. (e) A limited liability partnership’s indebtedness, including indebtedness issued as a distribution, is not a liability for purposes of subsection (a) of this section if the terms of the indebtedness provide that payment of principal and interest is made only if and to the extent that a payment of a distribution could then be made under this section. If the indebtedness is issued as a distribution, each payment of principal or interest is treated as a distribution, the effect of which is measured on the date the payment is made. (f) In measuring the effect of a distribution under § 7-12.1-806, the liabilities of a dissolved limited liability partnership do not include any claim that has been disposed of under § 7-12.1-807, 7-12.1-808, or 7-12.1-809. P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.

R.I. Gen. Laws § 7-12.1-407 Liability for improper distributions by limited liability partnership.

7-12.1-407. Liability for improper distributions by limited liability partnership. (a) Except as otherwise provided in subsection (b) of this section, if a partner of a limited liability partnership consents to a distribution made in violation of § 7-12.1-406 and in consenting to the distribution fails to comply with § 7-12.1-409, the partner is personally liable to the partnership for the amount of the distribution which exceeds the amount that could have been distributed without the violation of § 7-12.1-406. (b) To the extent the partnership agreement of a limited liability partnership expressly relieves a partner of the authority and responsibility to consent to distributions and imposes that authority and responsibility on one or more other partners, the liability stated in subsection (a) of this section applies to the other partners and not to the partner that the partnership agreement relieves of the authority and responsibility. (c) A person that receives a distribution knowing that the distribution violated § 7-12.1-406 is personally liable to the limited liability partnership but only to the extent that the distribution received by the person exceeded the amount that could have been properly paid under § 7-12.1-406. (d) A person against which an action is commenced because the person is liable under subsection (a) of this section may: (1) Implead any other person that is liable under subsection (a) of this section and seek to enforce a right of contribution from the person; and (2) Implead any person that received a distribution in violation of subsection (c) of this section and seek to enforce a right of contribution from the person in the amount the person received in violation of subsection (c) of this section. (e) An action under this section is barred unless commenced not later than two (2) years after the distribution. P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.

R.I. Gen. Laws § 7-12.1-408 Rights to information of partners and persons dissociated as partner.

7-12.1-408. Rights to information of partners and persons dissociated as partner. (a) A partnership shall keep its books and records, if any, at its principal office. (b) On reasonable notice, a partner may inspect and copy during regular business hours, at a reasonable location specified by the partnership, any record maintained by the partnership regarding the partnership’s business, financial condition, and other circumstances, to the extent the information is material to the partner’s rights and duties under the partnership agreement or this chapter. (c) The partnership shall furnish to each partner: (1) Without demand, any information concerning the partnership’s business, financial condition, and other circumstances which the partnership knows and is material to the proper exercise of the partner’s rights and duties under the partnership agreement or this chapter, except to the extent the partnership can establish that it reasonably believes the partner already knows the information; and (2) On demand, any other information concerning the partnership’s business, financial condition, and other circumstances, except to the extent the demand or the information demanded is unreasonable or otherwise improper under the circumstances. (d) The duty to furnish information under subsection (c) of this section also applies to each partner to the extent the partner knows any of the information described in subsection (c) of this section. (e) Subject to subsection (j) of this section, on ten (10) days’ demand made in a record received by a partnership, a person dissociated as a partner may have access to information to which the person was entitled while a partner if: (1) The information pertains to the period during which the person was a partner; (2) The person seeks the information in good faith; and (3) The person satisfies the requirements imposed on a partner by subsection (b) of this section. (f) Not later than ten (10) days after receiving a demand under subsection (e) of this section, the partnership in a record shall inform the person that made the demand of: (1) The information that the partnership will provide in response to the demand and when and where the partnership will provide the information; and (2) The partnership’s reasons for declining, if the partnership declines to provide any demanded information. (g) A partnership may charge a person that makes a demand under this section the reasonable costs of copying, limited to the costs of labor and material. (h) A partner or person dissociated as a partner may exercise the rights under this section through an agent or, in the case of an individual under legal disability, a legal representative. Any restriction or condition imposed by the partnership agreement or under subsection (j) of this section applies both to the agent or legal representative and to the partner or person dissociated as a partner. (i) Subject to § 7-12.1-505, the rights under this section do not extend to a person as transferee. (j) In addition to any restriction or condition stated in its partnership agreement, a partnership, as a matter within the ordinary course of its business, may impose reasonable restrictions and conditions on access to and use of information to be furnished under this section, including designating information confidential and imposing nondisclosure and safeguarding obligations on the recipient. In a dispute concerning the reasonableness of a restriction under this subsection, the partnership has the burden of proving reasonableness. P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.

R.I. Gen. Laws § 7-12.1-409 Standards of conduct for partners.

7-12.1-409. Standards of conduct for partners. (a) A partner owes to the partnership and the other partners the duties of loyalty and care stated in subsections (b) and (c) of this section. (b) The fiduciary duty of loyalty of a partner includes the duties: (1) To account to the partnership and hold as trustee for it any property, profit, or benefit derived by the partner: (i) In the conduct or winding up of the partnership’s business; (ii) From a use by the partner of the partnership’s property; or (iii) From the appropriation of a partnership opportunity; (2) To refrain from dealing with the partnership in the conduct or winding up of the partnership business as or on behalf of a person having an interest adverse to the partnership; and (3) To refrain from competing with the partnership in the conduct of the partnership’s business before the dissolution of the partnership. (c) The duty of care of a partner in the conduct or winding up of the partnership business is to refrain from engaging in grossly negligent or reckless conduct, willful or intentional misconduct, or a knowing violation of law. (d) A partner shall discharge the duties and obligations under this chapter or under the partnership agreement and exercise any rights consistently with the contractual obligation of good faith and fair dealing. (e) A partner does not violate a duty or obligation under this chapter or under the partnership agreement solely because the partner’s conduct furthers the partner’s own interest. (f) All the partners may authorize or ratify, after full disclosure of all material facts, a specific act or transaction by a partner that otherwise would violate the duty of loyalty. (g) It is a defense to a claim under subsection (b)(2) of this section and any comparable claim in equity or at common law that the transaction was fair to the partnership. (h) If, as permitted by subsection (f) of this section or the partnership agreement, a partner enters into a transaction with the partnership which otherwise would be prohibited by subsection (b)(2) of this section, the partner’s rights and obligations arising from the transaction are the same as those of a person that is not a partner. P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.

R.I. Gen. Laws § 7-12.1-410 Actions by partnership and partners.

7-12.1-410. Actions by partnership and partners. (a) A partnership may maintain an action against a partner for a breach of the partnership agreement, or for the violation of a duty to the partnership, causing harm to the partnership. (b) A partner may maintain an action against the partnership or another partner, with or without an accounting as to partnership business, to enforce the partner’s rights and protect the partner’s interests, including rights and interests under the partnership agreement or this chapter or arising independently of the partnership relationship. (c) A right to an accounting on dissolution and winding up does not revive a claim barred by law. P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.

R.I. Gen. Laws § 7-12.1-411 Continuation of partnership beyond definite term or particular undertaking.

7-12.1-411. Continuation of partnership beyond definite term or particular undertaking. (a) If a partnership for a definite term or particular undertaking is continued, without an express agreement, after the expiration of the term or completion of the undertaking, the rights and duties of the partners remain the same as they were at the expiration or completion, so far as is consistent with a partnership at will. (b) If the partners, or those of them who habitually acted in the business during the term or undertaking, continue the business without any settlement or liquidation of the partnership, they are presumed to have agreed that the partnership will continue. P.L. 2022, ch. 123, § 2, effective January 1, 2023; P.L. 2022, ch. 124, § 2, effective January 1, 2023.

Source: State of Rhode Island General Assembly (rilegislature.gov)URL: https://webserver.rilegislature.gov/Statutes/TITLE7/7-12.1/7-4/INDEX.htmFetched: 10/20/2026