Actual and Apparent Authority
In a partnership firm, actual authority means the power a partner is officially given by the partnership to act on its behalf. This is like the partner having a clear job description or agreement that says what they can and can’t do. For example, if a partner is given actual authority to sign contracts with suppliers, then they can do that because it’s been agreed upon by the other partners.
Apparent authority, on the other hand, is when it looks like a partner has the power to act, even if they weren’t specifically given that authority. Let’s say a partner usually negotiates with clients, and the clients believe they have the authority to sign contracts. If that partner signs a deal, even without official permission, the firm could still be held responsible because it seemed like the partner had the authority to act. The key difference is actual authority is what’s agreed within the firm, while apparent authority is what others outside the firm believe based on the partner’s actions.
By CA L.Muralidharan and CPA L.Mukundan
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