A partnership business has two types of partners. General partners have unlimited authority to manage the partnership business, whereas limited partners are generally mere investors who do not participate in the management functions of the business. A general partner can bind the partnership to business deals and contracts if she's acting within the parameters of her authority.
A general partnership consists of all general partners who possess unlimited liability for the debts and obligations of the business or, depending on the partnership agreement, the liability of general partners may be limited by their capital accounts. A limited partnership has at least one general partner and at least one limited partner. Limited partners provide capital in the business, and their liability for the debts of the business is limited by their investments. A limited partner may not enter into contractual arrangements on behalf of the partnership. Because all general partners may contract on behalf of the partnership business, one general partner can commit another partner to a business deal if he's authorized to do so.
General partners act as agents of the partnership business and have obligations to one another. Each general partner owes a duty of good faith to perform acts on behalf of the business. A partner must conduct business that is in the best interest of the partnership. Hence, each general partner must notify other partners of any important information that affects the business.
Actual and Apparent Authority
One general partner can bind the partnership and other general partners to a contract with a third party before notifying the other partners. The other partners are not required to have actual authority of the contract before the contract is enforceable. As long as the general partner has apparent authority to bind the other partners, a third party contract is enforceable. Apparent authority means that a third party reasonably believes, based on the acts of the partners, that one partner may contract on behalf of the business. Although this is a general rule, a partnership agreement may limit a partner’s ability to enter into agreements without obtaining the express authority of the other partners and require all general partners to notify other partners of prospective transactions with third parties.
Statements and Admissions
In addition to conducting partnership transactions in the ordinary course of the partnership business, a general partner can also bind the partnership to any definitive statements and admissions made on behalf of the partnership. Thus, other partners are liable for any statements a general party makes to third parties.
Marie Huntington has been a legal and business writer since 2002 with articles appearing on various websites. She also provides travel-related content online and holds a Juris Doctor from Thomas Cooley Law School.