Skip to content

IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Rahul, Sana and Tarun are partners in a Chennai general partnership that deals in actuarial software. Rahul signs a supply contract with a vendor in the ordinary course of the firm's business, but without telling the others. The firm later fails to pay. Which statement best reflects the Indian position?

The firm and all partners are bound, because each partner acts as agent of the firm for acts in the ordinary course of business. Liability is joint and several and extends to personal assets, so the vendor need not look only at Rahul.

  1. AOnly Rahul is liable, because the others did not sign
  2. BThe firm and all partners are bound, because a partner is an agent of the firm for acts in the ordinary course of businessCorrect
  3. CNo one is liable unless the contract was approved by all partners in writing
  4. DOnly the firm's assets can be claimed, and the partners' personal assets are protected
  5. The vendor must first sue Rahul and only then proceed against the others

Explanation

Each partner is the agent of the firm and of the other partners for acts done in the ordinary course of business. The firm and all partners are therefore bound, and their liability is joint and several, extending to personal assets. Option 3 describes limited liability, which a general partnership does not offer.

Did you get it right without looking?

One question tells you little. A timed set on Separate legal personality, directors' duties, shareholders and partnerships shows your real accuracy, how long you take and where you lose marks.

Practise Separate legal personality, directors' duties, shareholders and partnershipsFree diagnostic mock

More Separate legal personality, directors' duties, shareholders and partnerships questions