In which form of organisation is a trade agreement made by one owner binding on the others? Give reasons to support your answer.
Partnership is the form of organisation where a trade agreement made by one owner is binding on the others.
Reasons:
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In a partnership firm, partners act as agents of the firm as well as of each other. This means that when one partner enters into a trade agreement on behalf of the firm, it is considered as an agreement made by the firm itself.
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Due to this agency relationship, all partners are bound by the actions of any one partner undertaken in the ordinary course of business. This principle ensures that third parties can rely on agreements made with any partner.
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The concept of 'partner by estoppel' further illustrates this binding nature—where even a person who represents themselves as a partner can be held liable, showing how partners' actions create obligations for all partners.
Explanation
This question tests the student's understanding of the principle of mutual agency in partnership. The context mentions 'partner by estoppel' in the Short Answer Questions section, which relates to how partners' actions bind the firm. In partnership, unlike sole proprietorship (single owner) or Joint Hindu Family business (where only Karta's decisions bind others), any partner can bind all other partners through agreements made in the course of business.
Solution Steps
Step 1: Identify the key characteristic - one owner's agreement binding others
Step 2: Compare forms of organisation - sole proprietorship has one owner, so no 'others' to bind
Step 3: In Joint Hindu Family, only Karta's decisions bind others, not any owner
Step 4: In Partnership, partners are mutual agents, so any partner's agreement binds all partners
Step 5: Conclude that Partnership is the correct answer with reasoning based on agency principle