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Business Law: Liability of General Partners (Case Study Sample)
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Liability of General Partners
A general partner in a partnership has an implied authority of the firm. He is an agent of the firm such that if he enters into transactions, within the scope of the partnership business, he will bind the firm. However, this implied authority only extends to what is necessary for the overall conduct of the partnership business. As such, if he commits the following acts in course of the firms business it will be binding to the firm:
May pledge or sell the partnership goods
May purchase goods on credit for the firm provided the goods are the kind normally employed in the firms business
May accept money in payment of debtors due to the firm and issue receipts for them
May engage or discharge a servant
May borrow money, contract debts and pay debts on behalf of the firm
In case where money or property received is misappropriated by a partner, the partnership and partners will be severally and jointly liable in these cases:
Where one partner acting within the scope of his apparent authority receives the money as a property of a third person and misapplies it (Bays, 2000).
Where a firm in the course of its business receives money or property of a third person and the money is misapplied by one or more partners. As such, McGowan who was acting for partnership misapplied the money that was due to suppliers. His removal from the management of the partnership doesn’t make the partnership not liable. As such, McGowan was acting under implied authority and hence the partnership and partners are jointly liable for the money misapplied.
Liability of Limited
A limited partner cannot claim the rights of sharing management and incase he does he will be liable for all debts and obligations of the firm. He has no power to bind the firm. He also has the right to inspect the firm’s books and examine the prospectus of partnership business and may advise the partnership there on. The death or lunacy of a limited partner cannot dissolve the partnership unless that is provided by an agreement. In the event of a dissolution of a limited partnership, its affairs shall be would up by a general partner and above all he cannot dissolve the partnership by notice (Conyngton, 2000). These stipulate the rights and duties of a limited partner. It is evident that he cannot be held liable for the debts and obligations of the firm unless he takes part in the management of the partnership. In the above case therefore, the limited partners cannot be held liable for debts owed to S...
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