Mutual Agency is a legally binding relationship where the acts of each partner on behalf of the partnership entail the authority and participation of all the partners involved. The act of one partner binds all other partners. This is true even when partners act beyond the scope of their authority, so long as the act appears to be appropriate for the partnership.
Trustworthy people get together forms a partnership that starts by signing a detailed partnership agreement. As per the agreement, all partners share the authorization powers when it comes to anything regarding the partnership business.
For example, a partner in a grocery business may purchase a delivery truck for the business for their new home delivery launch but all the partners will have a mutual agency of the vehicle.
On the other hand, if a partner in a law firm purchased a snowmobile just because s/he wanted to, such as act would not bind the partners. This purchase is clearly outside the scope of the partnership business.
Use of the Term in Sentences
- Multiple partners having authority to finalize deals and verify transactions require partners who have ultimate trust in each other and that is one of the risks with the complete mutual agency.
- Bad decisions made by one partner impact all the partners sharing the mutual agency and that would be one of the disadvantages of partnership businesses.