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Types of partners

Active partner

An active partner is one who becomes a partner by an agreement and takes

active part in the conduct of the partnership business

He is also called an ostensible partner

Such a partner has a power to bind the other partners by his act in the course
of business

In case of retirement from the firm, an active partner must give a public notice
of his retirement. If he fails to do so, he continues to remain liable for the acts
of other partners, even after retirement

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Dormant or sleeping partner

A dormant partner is the one who is neither active nor is known to the
outsiders

He invests capital and has a share in the profits of the business

His existence is kept a secret from the outsiders dealing with the firm and his
position is similar to that of an undisclosed principal (partner)

Like an active partner, a dormant partner is also liable to the third parties for all
the acts of the firm whether or not his existence is known to the third parties
at the time of making the contract
 At the time of retirement, he is not required to give a public notice of his
retirement

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Nominal partner

A nominal partner lends his name to the firm as he enjoys a good reputation in
the field of business. However, a nominal partner has no real interest in the
business

He does not contribute any capital and also does not take part in the conduct
of the partnership business

He is not entitled to share the profits of the business but is given commission
or remuneration

As a matter of fact, a nominal partner only lends his name to the firm and his
name is used in the firm as if he is an actual partner

He is liable for all acts of the firm as if he was its actual partner

Note: A nominal partner is known to the outside parties but does not share
profits in the firm. Whereas, a sleeping partner on the other hand is not known to
the third parties but shares profits of the firm.

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Partner in profits only

A ‘partner for profits only’ is one who is entitled to a share only in the profits of
the firm and is not liable for losses, if any

However, he shall be liable like all other partners, since the liability of partners
is joint and several. So, if the firm incurs any loss and the other partners
become insolvent, the third party may hold such a partner liable
 Note: Such a partner is liable for all the debts of the firm, the reason is that the
fact he shares profits only is an internal arrangement among the partners of
which the third party may take no note.

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Sub-partner

When a partner agrees to share his profits derived from the firm with a third
person, that third person is known as a sub-partner

A sub-partner cannot represent himself as a partner in the original firm

He has no right against the original firm nor is he liable for the acts of the firm

He can claim the agreed share of profits from the contracting partner only

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Partner by estoppel
He is a person who holds himself out to the world as a partner of a firm while actually
not being so. He must have, by word (spoken or written) or by his conduct, represented
himself to be a partner. He is also called an active representative. In such a case, he is
stopped (prevented) from denying that he is not a partner. He is liable as a partner in
that firm to anyone who has, on the faith of any such representation, given credit to
the firm.
 

Example

Y represented himself as a partner in X’s business to Z in the presence of X. Y, in

fact, was not a partner. Z advanced a loan to X. X could not repay the loan. Z can
hold Y responsible for the repayment of loan because, Y is a partner by estoppel.

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Partner by holding out
He is a person who knowingly permits himself to be addressed as a partner to the third
parties, when he is not so. It is also called a tacit representation.
 
This situation generally occurs when a partner retires from the firm and a public notice
is not given in the desired manner to that effect.
 
Example

When a retiring partner does not give a public notice of his retirement and the
continuing partners still use his name as a partner on letter-heads, bills etc., he will
be personally liable, on the grounds of holding out, to the third parties who give
credit to the firm on the faith that he is still a partner.
 
Note: The principle of holding a retiring partner liable on the grounds of holding
out does not apply in the case of insolvent and deceased partners and therefore
cannot be extended to the estate or legal representatives even though no public
notice was given.

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Conditions for liability on the grounds of estoppel / holding out

In order to render a person liable as a partner on the grounds of estoppel or holding
out-
He must have made an active representation or a tacit representation

The other person must have acted on the faith of such representation, and
given credit to the firm

It does not matter whether the person representing himself or represented to

be a partner does or does not know that the representation has reached the
other person giving credit
 Note: The rule of holding partners by estoppel/holding out liable to third party is
based on the principle of equity and natural justice. Such partners cannot claim
any rights in partnership but only incur liability to the third parties who acted on
the faith that he was the partner of the firm.

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Minor partner
According to Sec. 11 of The Indian Contract Act, an agreement by or with a minor is void
as he is incapable of entering into a contract, but a minor can be admitted to the benefits of
an already existing firm with the consent of all the partners. This provision is based on the
rule that a minor cannot be a promisor, but he can be a beneficiary in a contract.

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Rules for the minor to be admitted as a partner

The partnership to which a minor can be admitted, should already be in

existence

All the partners should give their consent for the admission of a minor to the
benefit of partnership. Consent of just a majority would not be sufficient

If a minor is made a full-fledged partner under the terms of the partnership

deed, the deed would be invalid not only as against the minor, but also as
against the other partners

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Rights and liabilities of a minor partner before attaining majority

A minor has a right to his agreed share of profit

 He has the right to access, inspect and copy any of the books of accounts of
the firm

He can file a suit for his share, if he isn’t given the same. This right is available
only when he desides to severe his relationship with the firm

The liability of the minor partner is confined only to the extent of his share in
profits and property of the firm. Over and above this, he is neither personally
liable nor is his private estate liable

He cannot be declared insolvent

A minor has the right to exercise the option to leave or remain in the
partnership on attaining the age of majority

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Position of a minor partner on attaining majority

He must decide the same within 6 months from the date of his attaining
majority or obtaining the knowledge that he has been admitted to the benefits
of the firm, which ever date is later, as to whether or not he wants to continue
as the partner of the firm by giving public notice.

The minor may give a public notice that he has elected to become a partner or
he has elected not to become a partner in the firm, and such notice shall
determine his position with regard to the firm

If the minor fails to give such a notice within the time specified by Indian
partnership Act, it will be assumed that he has opted to become a partner in
the firm and would be liable to the third parties on the principle of holding out

If he elects to become a partner, he is liable personally to the third parties for

all the acts of the firm retrospectively, i.e., from the date he was admitted to
the benefit of partnership and not from the date of becoming a major

His share in profit and property remains the same

If he elects not to become a partner, then he is liable just like a minor until the
date of public notice
 If the minor elects not to become a partner then he will not be liable neither his
property would be liable for any act of the firm done after the date of notice

Note: If, after attaining majority but before choosing to become a partner, the
minor (now major) represents himself as a partner in the firm, he will be
personally liable on the grounds of ‘holding out’ to anyone who has, on the faith
of such representation, granted credit to the firm.

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