Last week I wrote about how easy it was to fall into a partnership, whether or not that was your intention. While forming a partnership is almost too easy, being a partner brings with it certain obligations of which you should be aware.
In the absence of a partnership agreement, every partner has an equal right to participate in the management of the business. And as a result of this, by section 6 of the Partnership Act, every partner has the power to bind the firm and the co-partners in all decisions or acts related to the business. o-partners are bound by a partner’s decisions irrespective of whether they agreed with or whether they had any knowledge of the action.
For example, if partner A enters into a contract to buy certain software from a dealer for his firm, co-partners B and C are bound by the contract even though they had no idea that such a contract was being entered into and they had no intention of entering into the contract. The only time co-partners are not bound by their partner’s actions is if the partner did not have authority to act AND the party he or she was dealing with should have reasonably known about this lack of authority.
What this means for partnerships is that partners can be put in a position of being bound by another partner’s actions, without any agreement or input. If you are in a partnership and your partner enters into a contract to buy $100,000 worth of supplies without your knowledge, you and your firm are bound by the contract whether or not your partner ever discussed the contract with you. You can see how being cavalier about your partnership arrangements can put you and your business in a position you never expected to be. When we discuss partners’ liabilities, you should be able to appreciate the full effect of section 6 on partnerships and to the risks you undertake in a partnership.
Sapna Mahboobani is a business and technology lawyer and founder of Sapna Law. If you would like her to advice on your partnership or would like her to draft a partnership agreement for you, you may contact her at email@example.com or use the contact page on this blog.