Question

In which form of organization is a trade agreement made by one of the owners binding on the others? Give reasons to support your answer.

Answer 1

In partnership form of organization, a trade agreement made by one owner is binding on the others. The Indian Partnership Act, 1932 defines partnership as "the relation between persons who have agreed to share the profit of the business carried on by all or anyone of them acting for all." The definition of partnership highlights the fact that it is a business carried on by all or anyone of the partners acting for all. One partner is an agent of other partners as he/she represents them and thereby binds them through his/her acts. He/She is a principal as he/she too can be bound by the acts of other partners. Hence, every partner is both an agent and a principal. This is the reason why a trade agreement made by one owner is binding on the others. Further, the partners are jointly responsible for the payment of debts and they contribute in proportion to their share in business and as such are liable to that extent. The partners share amongst themselves the responsibility of decision making and control of day-to-day activities.