Question

Explain the concept of mutual agency in partnership firm.

Answer 1

Mutual agency is the legal relationship between partners in a partnership where each partner has authorization powers and the ability to enter the partnership into business contracts. In other words, each partner in the partnership is an agent in the business and the authority to make business decisions that commit or bind the partnership, as a whole, to a business agreement with a third party or entity.

Mutual agency only exists for partners acting within the scope of normal business operations and dealings. For example, a retailer apparel partner with agency would not be able to contract the other partners into a deal to purchase a piece of investment real estate because this would be outside the normal operations of the business.

One of the retail partners can, on the other hand, purchase goods from a vendor and require the partnership pay for the goods. This transaction is within the normal course of operations of the business.