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Forms Of Business Organization

Question

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

Solution

A trade agreement made by one person is binding on the other in a partnership form of organisation because of following reasons :

Mutual agency

Partnership is a form of business organisation which is carried on by all or any one acting for all i.e. every partner is both an agent and a principal.
He is an agent of other partners as he represents them and thereby binds them through his acts.
He is a principal as he can be bound by the acts of other partners.

Decision making and control

The partners share amongst themselves the responsibility of decision making and control of day to day activities.
Decisions are generally taken with consent.
However, if one partner takes any decision for the betterment of the firm, that is binding on all the partners of the firm.

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