Personal risk

Each partner is personally liable for all of the debts and liabilities of the partnership. This includes the negligence of another partner if they were acting on partnership business and all debts run up by the other partner in the partnership name even if they had no authority to do so. So far as the outside world is concerned they are entitled to treat any partner as acting with the full authority of the partnership unless they know specifically that is not the case. It is important for each partner to be involved in risk management of the partnership. Partners have a responsibility to foresee what could affect the partnership and to make sure plans are in place that will minimise the impact of events or changes that will have a negative effect.

Areas of risk which partners are expected to consider include:

• Key staff leaving
• Misuse of funds
• Incidents in the work place
• Cash flow forecasts
• Credit control

For larger partnerships see managing risk for companies

Board members are protected by incorporation from being personally liable for the debts of the trust but they can still be held liable for losses if they act in bad faith or negligently in the exercise of their duties.

Board members may carry personal liability for legal matters to do with the society. For a society one of the main risks will relate to Health and Safety in Employment prosecutions.

Officers or members of the board can also be fined $2.00 per day for failing to comply with a notice from the Registrar of Incorporated Societies for conducting operations outside the scope of the society's objectives.

You cannot obtain insurance or any indemnity from the organisation for fines.

No member of a board is personally liable for any act or default done or made by the board or by any member of the board in good faith in the course of the operations of the board.

Trustees carry personal liability for financial or legal matters to do with the trust. It is normal for trustees to seek to limit their liability to the assets of the trust.

Trusts applying to Māori Land are subject to the general law of trusts in the same way as other trusts are.

The general rule is that a trustee's liability is not personal but is limited to the assets of the trust.

However, if a trustee acts dishonestly, recklessly, or in breach of the trust, he or she can be personally liable for any resulting loss.

Accordingly the liability of trustees of Māori land is legally identical to the liability of any trustees and the law of trust applies to define that liability.

A trustee is not personally liable for decisions of the trust where a trustee dissents in writing from the majority decision of the trustees before that decision is implemented.

Custodian trustees are not liable for any act or default of the responsible trustees.

The Te Ture Whenua Māori Act 1993 does not address the issue of the liability of members of the committee of management.

As Māori incorporations are not incorporated under the Companies Act 1993, the members of the committee do not have the statutory obligations that directors have under the Companies Act.

As Māori incorporations hold the land in trust for the incorporated owners in proportion to their several interests in the land, it is possible that the committee members' liability is the same as the liability of trustees of trusts over Māori freehold land.

The Māori Land Court may at any time require any officer of a Māori incorporation to attend before the Court and to explain any act or omission of any one of the following:

• Failure to compile a list of unclaimed dividends and to transmit it to the registrar
• Failure to declare an interest and refrain from any discussions on any matter before the committee that directly or indirectly affects that person's remuneration or the terms of that person's employment as a servant or officer of the incorporation, or that directly or indirectly effects any contract in which that person may be interested or concerned other than as a member of another committee of management
• Failure to keep proper accounts
• Failure to submit to a general meeting of shareholders a statement of financial position and statement of financial performance and such other statements and reports as are required
• Failure to file in the Court a statement of financial position and statement of financial performance for public inspection within 14 days after their submission to a general meeting of shareholders.
• Failure to appoint an auditor as required
• Failure to transmit a copy of a special resolution to the registrar in accordance with Section 279(3) of Te Ture Whenua Māori Act 1993
• Failure to keep, in the prescribed manner, a register of shareholders, and an index of shareholders
• Failure to hold, as prescribed, an annual general meeting of the shareholders
• The making of any payment from the funds of the incorporation that is not authorised by the Te Ture Whenua Māori Act 1993

Committee members may also be removed from office by the Court on the application of any shareholder where it is found that the member has:

• Failed to carry out his or her duties satisfactorily
• Contravened any of the provisions of Te Ture Whenua Māori Act 1993 or the constitution of the incorporation
• Acted in a manner that is incompatible with the membership of the committee

A member may also be removed from office where the Māori Land Court makes a finding that removal is in the best interests of the Māori incorporation concerned.

The general rule is that trustees' liability is not personal but is limited to the assets of the trust.

If a trustee acts dishonestly, recklessly or in breach of trust, he or she can be personally liable for any resulting loss.

Trustees carry personal liability for financial or legal matters to do with the trust. It is normal for trustees to seek to limit their liability to the assets of the trust.

Page last updated: Thu, 12 May 2005