Corporate and Business Law (Global) · Partnerships

Partners' Authority and Liability Explained for ACCA LW

Updated 11 October 2026 · Fact-checked

Each partner is an agent of the firm and can bind it and the other partners by acts done in the ordinary course of the firm's business. Partners have unlimited personal liability for firm debts, joint for contracts and several for wrongs. Check authority first, then who is liable.

Understand Partners' Authority and Liability

A general partnership is not a separate legal person in most Global-variant jurisdictions. It is a relationship between the partners who carry on business together. So the firm cannot act by itself. It acts through its partners.

This is why each partner is treated as an agent of the firm and of the other partners. When a partner makes a contract for the firm, the firm and all partners are normally bound. The partner who acts is the agent. The other partners are the principals.

Authority comes in two forms. Actual authority is what the partners have agreed, in the partnership agreement or by conduct. It can be express or implied. Apparent (ostensible) authority arises when the firm's conduct leads a third party to believe the partner can act. The third party must reasonably rely on it. A secret limit on a partner's power does not bind an outsider who does not know of it.

The usual test for apparent authority is whether the act is of the kind normally done by partners in a business of that type, carried on in the usual way. If it is, the firm is bound. The firm is not bound if the third party knew the partner had no authority, or did not know or believe him to be a partner.

Liability follows. Partners have unlimited liability. If the firm's assets run out, creditors can claim against the partners' personal assets. Liability is joint for contract debts. In many jurisdictions it is joint and several for wrongs by a partner in the ordinary course of business. Rules differ by jurisdiction, so follow the rule the exam gives or the general common-law approach.

A new partner is generally not liable for debts incurred before joining, unless he agrees to take them on. A retiring partner stays liable for debts incurred while a partner. He can also be liable for later debts to a creditor who dealt with the firm before he left and had no notice of his departure. Proper notice to the world ends this risk.

Key formulas to remember

Partner as agent: Act of partner in ordinary course of firm's business ⇒ firm and co-partners bound; Applies to actual or apparent authority. The business is judged by what is usual for that type of firm.
Actual authority: Actual authority = express (agreement) + implied (conduct, nature of business); Look for limits in the partnership agreement.
Apparent authority: Act usual for the business + third party unaware of limit ⇒ firm bound; Not bound if the third party knew of the lack of authority or did not know he was a partner.
Liability for contracts: Unlimited; joint; Firm assets first in practice, then personal assets of partners.
Liability for wrongs: Unlimited; joint and several for wrongs in ordinary course of business; Creditor may sue any one partner or all of them.
Incoming partner: No liability for debts before joining unless he agrees (novation); Liable for debts after joining.
Outgoing partner: Liable for debts while a partner; liable later to those without notice of leaving; Give notice to the world and actual notice to existing customers.

How to solve Partners' Authority and Liability questions

Use this order for any scenario question on partner authority and liability.

1Identify the type of business and whether it is a general partnership, since limited partnerships and LLPs work differently.
2Identify who made the contract or committed the wrong, and whether he is a partner.
3Test actual authority: read the agreement for any limits on this act.
4If there is no actual authority, test apparent authority: was the act usual for this type of business, and did the third party know of any limit?
5Decide whether the firm and co-partners are bound.
6State the liability: unlimited, joint for contracts, joint and several for wrongs, and who can be sued.
7Check timing for incoming and outgoing partners and whether notice was given.
8Finish with a clear conclusion and, if needed, the remedy such as the other partners' right to be indemnified by the one who exceeded authority.

Quickest way: Authority then liability in four checks

When to use it: Use for Section A and Section B objective questions where time is short.

Is the person a partner, or held out as one?
Is the act usual for this kind of firm? If yes, the firm is probably bound.
Did the third party know of any limit? If yes, not bound.
Timing check: before joining, no liability; after leaving without notice, still liable.

Common mistakes in Partners' Authority and Liability

Saying a secret restriction on a partner's power frees the firm.
Students focus on the agreement and forget the outsider's position.
Fix: A restriction only protects the firm if the third party knew of it or the act was not usual for the business.
Treating the firm as a separate legal person that alone owes the debt.
Mixing up partnerships with companies.
Fix: Remember there is no separate personality for a general partnership, so partners are personally liable without limit.
Making a new partner liable for debts before he joined.
Assuming liability attaches to the firm's whole history.
Fix: He is liable only from joining, unless he agrees to take on earlier debts.
Saying an outgoing partner is free of all liability once he leaves.
Ignoring the notice rule.
Fix: He remains liable for debts while a partner, and to those who dealt with the firm before and had no notice of his departure.
Binding the firm to an act that is not usual for the business.
Assuming every partner can do anything.
Fix: Compare the act with what a normal firm of that type does. Unusual acts need actual authority.
Confusing joint with joint and several liability.
The terms sound alike.
Fix: Joint means partners are liable together. Joint and several means a creditor can also sue any one partner for the whole.

Worked examples

Example 1

Ali, Bea and Cho run a firm of estate agents. The agreement says no partner may buy office equipment above $5,000 without all partners' consent. Ali orders equipment for $8,000 from Delta Ltd, which knows nothing of the limit. Is the firm bound?

Show the solution

Ali is a partner, and buying office equipment is usual for an estate agency.
Actual authority is missing because the agreement limits purchases to $5,000.
Apparent authority: the act is usual for this kind of business.
Delta Ltd did not know of the limit, so it can rely on the apparent authority.
The firm and all partners are therefore bound.

Answer: Yes. The firm is bound through Ali's apparent authority. Bea and Cho may have a claim against Ali for breaching the agreement.

Example 2

Dev joins a partnership on 1 July. The firm owed Echo Ltd $20,000 for goods bought in March. Another $10,000 was bought in September. Dev has not agreed to take on earlier debts. For how much can Echo Ltd claim against Dev personally?

Show the solution

A new partner is not liable for debts incurred before joining unless he agrees.
The March debt of $20,000 arose before 1 July, so Dev is not liable for it.
The September debt of $10,000 arose while Dev was a partner.
Partners have unlimited liability for debts incurred while they are partners, so Dev is liable for this debt.

Answer: $10,000. Dev is not personally liable for the $20,000 March debt.

Exam tips

Always start with whether the act was usual for the type of business. It decides apparent authority.
Use the words actual, apparent, joint and several in your answer. Objective options often turn on one of them.
Check dates in scenarios. Before joining or after leaving with notice usually means no liability.
Remember a limited partnership or LLP changes the liability rule. Do not apply unlimited liability to those without checking.
In Section B scenarios, read all five questions first. They often test the same facts from different angles.

Practice questions from Partnerships

Partners' Authority and Liability in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Partners' Authority and Liability: frequently asked questions

What does it mean that a partner is an agent of the firm?

It means a partner can make contracts and take actions that bind the firm and the other partners. This applies where the act is within his authority, or is usual for the business. The other partners are in the position of principals.

What is apparent authority of a partner with an example?

Apparent authority arises when a third party reasonably believes a partner can act for the firm because the act is usual for that business. For example, a partner in a retail firm buys stock. The firm is bound even if the agreement forbade it, unless the supplier knew of the limit.

What is the difference between joint and joint and several liability?

Under joint liability, partners are liable together as a group for the firm's contract debts. Under joint and several liability, a creditor can sue the partners together or choose to sue any one of them for the full amount. Wrongs by a partner in the ordinary course of business are generally joint and several.

Is an outgoing partner still liable after leaving?

He remains liable for debts incurred while he was a partner. He may also be liable for later debts to creditors who dealt with the firm before and had no notice that he left. Giving proper notice ends that exposure.