A disadvantage of a partnership is that of 'mutual agency' which means:
A) each partner has limited liability for the debts incurred on a contract entered into by any other partner.
B) each partner must contribute the same capital and skills to the partnership.
C) each partner has the right to enter into contracts on behalf of the partnership.
D) only the partner with the highest cash contribution has the right to enter into contracts on behalf of the partnership.

Question

Quizplus · Accepted Answer

Mutual agency means that each partner has the right to enter into contracts on behalf of the partnership, which can lead to one partner committing the partnership to a deal without the knowledge or agreement of the other partner(s). This can create problems and potential liabilities for the other partners. Therefore, mutual agency can be considered a disadvantage of a partnership. A, B, and D are not correct because they do not accurately describe the concept of mutual agency.

A Disadvantage of a Partnership Is That of 'Mutual Agency