The Portable MBA in Finance and Accounting, 3rd Edition

238 Planning and Forecasting

be binding upon the partnership and the other partners, regardless of whether
such action has been internally authorized (see Exhibit 8.1).
Thus, if Jennifer purchases a subscription to the Harvard Business Re-
viewfor the partnership, and such an action is perceived to be within the ordi-
nary course of the partnership’s business, that obligation can be enforced
against the partnership, even if Jean and George had voted against it. Such
would not be the case, however, if Jennifer had signed a purchase and sale
agreement for an office building in the name of the partnership, because rea-
sonable third parties would be expected to know that such a purchase was not
in the ordinary course of business.
These rules extend to tort liability, as well. If Jean were wrongfully to in-
duce a potential client to breach its consulting contract with a competitor, the
partnership would be liable for interference with contractual relations, even if
the other two partners were not aware of Jean’s actions. Such might not be the
case, however, if Jean decided to dynamite the competition’s offices, because
such an act could be judged to be outside the normal scope of her duties as
a partner.
These obligations to third parties can even extend past the dissolution of
the partnership if an individual partner has not given adequate notice that he
or she is no longer associated with the others. Thus, a former partner can be
held liable for legal fees incurred by the other former partners, if he has not
notified the partnership’s counsel about leav ing the firm.
It should also be noted that agency law reaches into the internal relation-
ships of partners. The law imposes upon partners the same obligations of fidu-
ciary loyalty, noncompetition, and accountability as it does upon agents with
respect to their principals.

Corporations

There can be much f lexibility and complexity in the allocation of control in
the partnership form, but not nearly so much as in the corporate form. Many

EXHIBIT 8.1 Principal and agent.

Principal

Agent Agent

Principal

Governedby: Outsider

Agreement

and

Fiduciary

Principles

Express,

Apparent Authority,

and

Scope of Employment