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The Necessity of Good Faith

Posted & filed under Ownership Interest.

home-imageThe law is filled with references to “good faith” and the requirement that parties deal with each other in “good faith,” but many business owners may not understand the significance of this doctrine.  A pending Delaware case demonstrates the importance of good faith.  In this case, the Delaware court was faced with the question of whether a limited partnership acted in good faith when it removed its general partner for failing to produce audited financial statements within 120 day after the end of the fiscal year.  The limited partnerships claimed that it acted in good faith because the managing partner continuously failed to complete the limited partnership’s audited financial statements within the required 120 day time period.  However, the general partner argued that the limited partnership exceeded its authority and was unable to prove that its decision to remove the general partner was made in good faith.   Specifically, the general partner argued that there was no misconduct, due to the bad real estate market it was necessary to produce delayed financial statements, and there had been years of delayed financial statements.  While the Delaware Supreme Court is expected to issue an opinion in the next couple of months, this case indicates the significance of the doctrine of good faith.  It is of utmost importance that business owners always act in good faith.

This article is not intended to establish an attorney-client relationship and is not intended to confer legal advice. No attorney-client relationship should be inferred in the absence of a written and executed engagement agreement that expressly indicates the creation of an attorney-client relationship.

Written by: Heather Wagner