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Business Law

“An agent is a person employed to do any act for another or to represent another in dealings with third persons. The person for whom such act is done, or who is represented, is called principal.”

General rules of Agency
Whatever a person competent to contract may do by himself, he may do through an agent, except for acts involving personal skill and qualification.
For example: a person cannot marry through an agent, cannot paint a picture through an agent and so on.

 He who does through another, does by himself. In other words, „the act of the agent are, for all legal purposes, the acts of the principal.‟

Creation of Agency

Agency creation By agreement
Express Ratification Implied

Without agreement
Estoppel Necessity

Agency by agreement
Normally agency is created by an express agreement, specifying the scope of the authority of agent. The agent may, in such a case, be appointed either by word of mouth or by an agreement in writing. Ratification Ratification means the subsequent adoption and acceptance of an act originally done without instructions or authority. Thus where a principal affirms or adopts the unauthorised act of his agent, he is said to have ratified that act and there comes into existence an agency by ratification retrospectively.

Agency by agreement
Example: „A‟ buys 5 bags of wheat on behalf of „B‟, „B‟ did not appoint „A‟ as his agent. „B‟ may, upon hearing of the transaction, accept or reject it. If „B‟ accepts it, the act is ratified and „A‟ becomes his agent with retrospective effect. A valid ratification must fulfill the following conditions:
Principal must: exist at the time contract is made have legal capacity at that time be capable of ascertainment ratify the whole contract ratify within reasonable time

Agency without agreement
 Agency by estoppel
Such an agency is based on the „doctrine of estoppel‟ which may briefly be stated thus, “When an agent has, without authority, done acts or incurred obligations to third persons on behalf of his principal, the principal is bound by such acts or obligations, if he has by his words or conduct induced such third persons to believe that such acts and obligations were within the scope of agent‟s authority.

Agency without agreement
 Agency by estoppel
Example: „T‟ tells „M‟ in the presence and within the hearing of „N‟ that he (T) is N‟s agent. „N‟ does not contradict this statement and keeps quiet. Later on „M‟ enters into a transaction with „T‟ believing honestly that „T‟ is N‟s agent. „N‟ is bound by this transaction and he will be estopped from denying the existence of the agency, even though such an agency did not in fact exists.

Agency without agreement
 Agency by necessity
An agency by necessity is conferred by law in certain cases, where a person is faced with an emergency in which the property or interest of another are in imminent danger, and it becomes necessary in order to preserve the property or interests, to act before the instruction of the owner can be obtained. The conditions which enable a person to act as an agent of necessity of another are as follows:
   There should be a real necessity for acting on behalf of the principal It should be impossible to communicate with the principal within the time available The alleged agent should act bonafide in the interests of the pricnipal.

bo·na fide adj. 1. Made or carried out in good faith; sincere. 2. Authentic; genuine.

Agency by implied agreement
 An agency relationship between two people may be implied by their relationship or by their conduct. Example: Implied agency of spouses in Germany German law provides that spouses are directly bound by one another‟s domestic transaction. There is therefore an implied agency relationship between spouses in domestic transactions. Example: Agency implied by employment relationship An employee‟s duties may involve him entering into contracts on his employer‟s behalf. Although an employer and employee are not automatically agents in the way that partners are, for this aspect of his job, an implied agency relationship exists between the employee (agent) and the employer (principal).

Relations between agent and third parties
 Liability of the agent for contracts formed An agent contracting for his principal within his actual and/or apparent authority generally has no liability on the contract and is not entitled to enforce it. However, the agent will be personally liable and can enforce it:
 If an agent, while contracting with a third party, expressly agrees to be personally liable on the contract, he can be held personally liable for any breach of contract.  Where it is usual business practice or trade custom for an agent to be liable and entitled.  Where the agent is acting on his own behalf even though he purports to act for a principal.  Where the agent exceeds his authority

Forming a partnership
 Partnerships can be formed very informally, but there may be complex formalities to ensure clarity. A partnership is formed when two or more people agree to run a business together. Partnerships can be formed in any trade, occupation or profession.  In order to be a partnership, the business must be „carried on in common‟, meaning that all parties must have responsibility for the business. In other words, there is more than one proprietor.  A husband and wife who run shop together are partners, a shop owner and his employees are not.

Forming a partnership
 Common formation formalities
 In practice, the formalities of setting up a partnership may be more complex than simple agreement.  Many professional people use partnerships. These business associations can be vast organisations with substantial revenue and expenditure such as the larger accountancy firms and many law firms.  Such organisations have so many partners that the relationships between them has to be regulated. Thus forming some partnerships can involve creating detailed partnership agreements which lay out terms and conditions of partnership.

Forming a partnership
 Common formation formalities
 The partnership agreement A written partnership agreement is not legally required. In practice there are advantages in setting down in writing the terms of their association It fills in the details which the law would not imply – the nature of the firm‟s business, its name, and the bank at which the firm will maintain its account for instance. A written agreement serves to override terms otherwise implied by the Partnership Act 1890 which are inappropriate to the partnership. The act for example implies (unless otherwise agreed) that partners share profits equally Additional clauses can be developed. Expulsion clauses are an example and they provide a mechanism to expel a partner where there would be no ability to do so otherwise.




Forming a partnership
 Supervision and regulation
 There is no formal statutory supervision or regulation of partnerships.  Their accounts need not be in prescribed form nor is an audit necessary.  The public has no means or legal right of inspection of the firm‟s accounts or other information such as companies must provide.,  If however, the partners carry on business under a firm name which is not the surnames of them all, say „Smith, Jones & Co‟, they are required to make a return of their profits for income tax and usually to register for VAT.

Termination of partnership
 Partnerships may be terminated by passing of time, termination of the underlying venture, death or bankruptcy of a partner, illegality, notice or by order of the court.
 Example: Termination of a partnership Alison, Ben, Caroline and David are in partnership as accountants. Caroline decides to change career and become an interior designer. In her place, Alison, Ben and David invite Emily to join the partnership. As far as third parties are concerned, a partnership offering accountancy services still exists. In fact, however, the old partnership (ABCD) has been dissolved, and a new partnership (ABDE) has replaced it.

Termination of partnership
 Events causing termination
       Passing of time – if the partnership was entered into for a fixed term Termination of the venture, if entered into for a single venture The death or bankruptcy of a partner (partnership agreement may vary) Subsequent illegality Notice given by a partner if it is a partnership of indefinite duration Order of the court granted to a partner Agreement between the partners.

Alternative forms of partnership
Limited Liability Partnership (LLP)
 An „LLP is cross between a company and a partnership. Cruicially, partners have limited liability, but LLP are more regulated than partnership.  LLPs have similar requirements for governance and accountability as limited companies. They are generally set up by firms of professionals such as accountants and lawyers, who are required by the rules of their professions to operate as partnerships but who seek to have the protection of limited liability.

Alternative forms of partnership
Muslim Partnerships
 Shirkah al-’Inan
This is an agreement where partners contribute capital, property or labour and share profits as agreed between them. It differs from a traditional English partnership in that partners are not liable for each other‟s debts, and each partner can only sue on a contract he has made.

 Mudaraba
A Mudaraba is a form of dormant partnership where a dormant partner provides capital and shares in the active partner‟s profits.  Musharaka A Musharakah is a form of Islamic partnership similar to English partnership where partners combine resources and share decisions and profits.

Authority of partners
 Regarding extended relationships of the partnership, the key issues are: partners authority to contract, and liability of partners for the acts of fellow partners.  In simple terms, a partner is the agent of the partnership and his co-partners. This means that some of his acts bind the other partners, either because they have, or because they appear to have, authority. The UK‟s Partnership ACT 1890 defines the authority of a partner to make contracts as follows.

Authority of a partner
 Every partner is an agent of the firm and his other partners for the purpose of the business of the partnership, and the acts of every partner who does any act for carrying on the usual way of business if the kind carried on by the firm of which he is a member bind the firm and his partners, unless the partner so acting has in fact no authority to act for the firm in the particular matter, and the person with whom he is dealing either knows that he has no authority, or does not know or believe him to be a partner.  Where a partner pledges the credit of the firm for a purpose apparently not connected with the firm‟s ordinary course of business, the firm is not bound, unless he is in fact specially authorised by the other partners: but this section does not affect any personal liability incurred by an individual.  If it has been agreed between the partners that any restriction shall be placed on the power of any one or more of them to bind the firm, no act done in contravention of the agreement is binding on the firm with respect to persons having notice of the agreement.

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