Relations of partners to third parties

1. A partner is the agent of the firm for the purpose of the business of the firm. Every partner plays a dual role in a partnership. One is the role of a principal, i.e. on his own behalf and the other the role of an agent for every other partner. It must be noted that every partner is an agent of every other partner only in the business of the firm.
2 PARTNER IS AN AGENT OF THE FIRM
A partner can make the firm liable by his acts, if done in the name of the firm and in the ordinary course of business of the firm. A partner, who contracts in his own name, incurs only a personal liability and not the collective liability of the firm.
3 IMPLIED AUTHORITY OF PARTNER AS AGENT OF THE FIRM
An act done by a partner to carry on the kind of business done by the firm (in the usual way) binds the firm. This authority of a partner to bind the firm is called his 'implied authority'.
The implied authority of a partner does not empower him to
(a) submit a dispute relating to the business of the firm to arbitration (i.e. for settlement by anindependent person other than the parties to the dispute);
(b) open a banking account on behalf of the firm in his own name;
(c) compromise or relinquish (give up) any claim by the firm;
(d) withdraw a suit or proceeding filed on behalf of the firm;
(e) admit (accept) any liability in a suit or proceeding against the firm;

(f) acquire immoveable property on behalf of the firm;
(g) transfer immoveable property belonging to the firm; or
(h)    enter into partnership on behalf of the firm.
4 EXTENSION AND RESTRICTION OF PARTNER'S IMPLIED AUTHORITY
The partners in a firm may by mutual agreement amongst themselves, extend or restrict the implied authority of any partner. Any act done by a partner on behalf of the firm within his implied authority binds the firm unless the person with whom he is dealing knows the restriction.
5 PARTNER'S AUTHORITY IN AN EMERGENCY
Whatever may be the powers given to a particular partner, in case of an emergency, a partner has authority to do all acts to protect the firm from loss, as would be done by a person of ordinary prudence in his own case. The firm is bound by such acts.
6 MODE OF ACTION TO   BIND FIRM
In order to bind a firm, the partner must do the activities in the name of the firm and execute the documents on behalf of the firm or in any other manner expressing or implying an intention to bind the firm. A person cannot simply sign an agreement in his own name to purchase goods for the firm and say that since he is the partner in a firm XYZ it is implied that the partners are bound to pay for the goods. For example, he should sign as 'For and on behalf of XYZ'.
7 LIABILITY OF A PARTNER FOR ACTS OF THE FIRM
Every partner is liable jointly with all the other partners and also severally for all acts of the firm done while he is a partner. This is a core principle of partnership business.
8 LIABILITY OF THE FIRM FOR WRONGFUL ACTS OF A PARTNER
If a partner commits some wrongful act or omits doing of something in the ordinary course of the business of the firm with or without the authority of other partners and consequently a loss or injury is caused to any third party, the firm is liable thereof to the same extent as the partner.
9 LIABILITY OF FIRM FOR MISAPPLICATION BY PARTNERS
The firm is liable to make good the loss of money or property from a third party in the following cases:
If any partner had received the funds within his obvious and clear authority but had misapplied the funds.
The firm received the funds in the course of its business and the same was misapplied by any of the partners while it is in the custody of the firm.
10 HOLDING OUT
Anyone who by words spoken or written or by conduct represents himself or knowingly permits himself to be represented to be a partner in a firm is as liable as a partner in that firm to any who has on the faith of any such representation given credit to the firm whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit.
This is known as doctrine of holding out. This means that when a person who is not at all a partner in a firm, either represents himself, or knowingly permits himself to be represented, as a partner in a firm and as a result of this, he induces others to give credit to the firm then he is known as a partner holding out. Such a stranger is liable individually and personally for the debts of the firm as if he was a partner in the firm on the principle of holding out. However, legal heirs or estate of the deceased partner is not liable to the firm, who uses his name, after his death.
11 RIGHTS OF TRANSFEREE OR A PARTNER'S INTEREST
A transfer by a partner of his interest in the firm does not entitle the person to whom the interest is transferred (transferee) to interfere in the conduct of the business but entitles the transferee only to receive the share of profits of the transferring partner and the transferee has to accept the account of profits agreed to by the partners. On dissolution of firm or cessation of the partner, the transferee is entitled to a share in assets of the firm and verification of accounts to ascertain his share.


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December 28, 2022 at 9:45 AM

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