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Note 2

A company cannot form a partnership with another company due to mutual agency issues, the personal nature of partnerships, ultra vires concerns, and liability mismatches. Partnerships require personal trust and allow partners to bind each other, which conflicts with a company's structure as an artificial entity. Additionally, a partnership firm cannot be a partner of another firm because it lacks a separate legal entity, cannot act as an agent, and presents unlimited liability complications.

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7 views1 page

Note 2

A company cannot form a partnership with another company due to mutual agency issues, the personal nature of partnerships, ultra vires concerns, and liability mismatches. Partnerships require personal trust and allow partners to bind each other, which conflicts with a company's structure as an artificial entity. Additionally, a partnership firm cannot be a partner of another firm because it lacks a separate legal entity, cannot act as an agent, and presents unlimited liability complications.

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251100018
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© All Rights Reserved
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Can Company form Partnership

In traditional partnership law, a company cannot form a partnership with another company for a
few core reasons:
First, mutual agency.
In a partnership, every partner is an agent of the firm and of the other partners. This means each
partner can bind the others by their acts. A company, however, acts only through its directors and
officers, and its powers are limited by its memorandum and articles. Allowing mutual agency
with another company conflicts with this structure.
Second, personal nature of partnership.
A partnership is based on personal trust and confidence between partners. A company is an
artificial legal person, not a natural one, so it lacks the personal element traditionally required in
partnership relations.
Third, ultra vires concerns.
Historically, companies were restricted to activities expressly stated in their objects clause.
Entering into a partnership could fall outside those objects and be ultra vires, and therefore void.
Fourth, unlimited liability.
Partners have unlimited liability for the debts of the firm. Companies are created to enjoy limited
liability, so entering a partnership would undermine that fundamental feature.
Concise points:
1. Mutual agency – Partnerships require each partner to bind others, which a company
cannot do naturally.
2. Personal nature – Partnership relies on personal trust; a company is an artificial entity.
3. Ultra vires – A company may exceed its legal powers by entering a partnership not
allowed in its objects.
4. Liability mismatch – Partners have unlimited liability, whereas companies have limited
liability.
Case Reference: G.M. Refining Company vs Commissioner of Income Tax (AIR (1967) Cal 419

Can a partnership firm be a partner of another firm


 No separate legal entity – A partnership firm is not a legal person and cannot enter into
contracts or own property in its own name.
 Mutual agency cannot apply – Every partner must be able to act as an agent for the
firm, which a firm itself cannot do in another partnership.
 Unlimited liability issues – Partners have unlimited liability; allowing a firm as a partner
complicates liability for debts.
 Lack of personal trust – Partnerships are based on personal confidence between
partners, which a firm, as a collective, cannot provide.

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