"The business of a partnership firm may be carried on by all the partners or any of them acting for all."

Identify the feature of the partnership indicated by the above statement.

Mutual Agency

The correct answer is option 3- Mutual Agency.

The operation of a partnership involves the active involvement of all partners or any individual partner acting on behalf of the entire partnership. This concept of "Mutual Agency" has two significant implications. Firstly, every partner has the right to participate in the management and decision-making of the partnership's affairs. Secondly, it establishes a relationship of mutual agency among all partners. This means that each partner, while conducting the partnership's business, acts both as a principal and an agent for all the other partners. As an agent, a partner can legally bind the other partners through their actions, and likewise, they are bound by the actions of other partners concerning the business of the partnership. The idea of mutual agency is so fundamental that without it, a partnership cannot exist. The essence of a partnership lies in this interdependent relationship, where partners collectively contribute to the business and share the responsibility for its actions and outcomes.

A partnership firm has no separate legal entity, apart from the partners constituting it. The essential features of partnership are:

1. Two or More Persons: In order to form partnership, there should be at least two persons coming together for a common goal. In other words, the minimum number of partners in a firm can be two. There is however, a limit on their maximum number. By virtue of Section 464 of the Companies Act 2013, the Central Government is empowered to prescribe maximum number of partners in a firm but the number of partners can not be more than 100. The Central government has prescribed the maximum number of partness in a firm to be 50.

2. Agreement: Partnership is the result of an agreement between two or more persons to do business and share its profits and losses. The agreement becomes the basis of relationship between the partners. It is not necessary that such agreement is in written form. An oral agreement is equally valid. But in order to avoid disputes, it is preferred that the partners have a written agreement.

3. Business: The agreement should be to carry on some business. Mere co-ownership of a property does not amount to partnership. For example, if Rohit and Sachin jointly purchase a plot of land, they become the joint owners of the property and not the partners. But if they are in the business of purchase and sale of land for the purpose of making profit, they will be called partners.

4. Mutual Agency: The business of a partnership concern may be carried on by all the partners or any of them acting for all. This statement has two important implications. First, every partner is entitled to participate in the conduct of the affairs of its business. Second, that there exists a relationship of mutual agency between all the partners. Each partner carrying on the business is the principal as well as the agent for all the other partners. He can bind other partners by his acts and also is bound by the acts of other partners with regard to business of the firm. Relationship of mutual agency is so important that one can say that there would be no partnership, if the element of mutual agency is absent.

5. Sharing of Profit: Another important element of partnership is that, the agreement between partners must be to share profits and losses of a business. Though the definition contained in the Partnership Act describes partnership as relation between people who agree to share the profits of a business, the sharing of loss is implied. Thus, sharing of profits and losses is important. If some persons join hands for the purpose of some charitable activity, it will not be termed as partnership.

6. Liability of Partners: Each partner is liable jointly with all the other partners and also severally to the third party for all the acts of the firm done while he is a partner. Not only that the liability of a partner for acts of the firm is also unlimited. This implies that his private assets can also be used for paying off the firm’s debts.