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Types of Partners

A partnership firm can have various kinds of partners with dissimilar roles and liabilities. A thorough knowledge of these types of partnerships firms, their rights and responsibilities are needed. These are described as follows:
  1. Active Partner: An active partner is the person who contributes capital, participates in the management of the organisation, shares its profits gained and losses incurred and is liable to an unlimited extent to the creditors of the firm. These partners play a genuine part in carrying out business of the firm on behalf of other partners.
  2. Sleeping or Dormant Partner: Partners who do not attend to the day. Today activities of the business are known as sleeping partners. A sleeping partner, on the other hand, contributes capital to the firm, shares its profits and losses, and has unlimited liability.
  3. Secret Partner: A secret partner is the person whose association with the firm is not known to the general public. Other than this distinct feature, in all other aspects he assumes the role of rest of the partners. He contributes to the capital of the firm, takes part in the management, shares its profits and losses, and has unlimited liability towards the creditors.
  4. Nominal Partner: A nominal partner is the person who allows the use of his/her name by the organization, but does not contribute to its capital. He/she does not actively participate in managing the firm and does not share its profit or losses but is liable, like other partners, to the third parties, with respect to repayments of the firm's debts.
  5. Partner by Estoppels: A person is considered as a partner by estoppels if, by his/her own initiative, conduct or behaviour, he/she gives an impression to others that he/she is a partner of the firm. These partners are liable for the debts of the firm since according to the third party they are considered partners, although they do not put in capital or there is absence of participation in the activities of the management.

Category

Contribution of Capital

Management

Share of profit / Loss

Liability

Active partner

ü

participates

Shares profits/losses

Unlimited

Sleeping or Dormant

ü

Does not participate

Shares profits/losses

Unlimited

Secret

ü

Participates, but secretly

Shares profits/losses

Unlimited

Nominal

x

Does not participate

Generally does not share profits / losses

Unlimited

Partner by estoppel

x

Does not participate

Does not share profits / losses

Unlimited

Partner by holding out

x

Does not participate

Does not share profits / losses

Unlimited

  1. Partner by Holding Out: A partner by 'holding out' is an identified as a person who though not a partner in a firm, is knowingly allowing himself/herself to be represented as a partner in a firm. This person becomes liable to outside creditors for repayment of any debts which have been allotted to the firm on the basis of such representation. If he is not really a partner and wants to save himself from such a liability, he should instantaneously issue a denial, clarifying his position that he is not a partner in the organization. If he does not do so, he will be responsible to the third party for any such debts.




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