Types of Partners in the Partnership Firm under the Contract Law
When two or more persons agree to operate and manage a business altogether and share profit and loss among themselves, it is known as a partnership. The general assumption is that partners always participate equally in the work as well as profits & losses, but there are different types of partnership arrangements and extent of their share in the business is based upon the extent of their liability or participation in carrying on the business of partnership firm.
Various kinds of partners generally found in a partnership business are:
- Active/Managing Partner: An Active partner, also known as Ostensible Partner, actively participates in the conduct and management of the business. Such partners act as agents to the other partners of the firm on a daily basis and carries on the business on their behalf. Therefore, an active is required to give a public notice of his intention to retire from the partnership firm. If he fails to do so, he will not be absolved from the liabilities for the acts done by other partners even after his retirement.
- Dormant/Sleeping Partner: As the name itself suggests, the sleeping partner does not actively participate in the conduct and management of the firm and merely contributes to the share capital and shares profits & losses in the firm. Though a sleeping partner is not an active participant but is bound by the activities of other partners i.e. he will be liable for contributing share in loss even if caused due to acts of other partners. Such partners are not required to notify the public of their intention to retire from the firm.
- Nominal Partner: A nominal partner is the one who lends his name to the partnership firm but doesn’t have any significant interest in it as he neither contributes towards capital and nor shares the profit of the firm. Though a nominal partner doesn’t have a say as such in regard to the management of the business but he is liable to the third parties having interest in the firm for actions of other partners.
- Partner by Estoppel: If any of the partners in a firm holds out any other person as a partner, through his words, conduct or any other means, such person becomes a partner in the firm by stopper or holding out. This principle of holding out works on fulfillment of two conditions:
- Representation: The person who has been held out have, by conduct or written/spoken words, made a representation that he was a partner in the firm.
- Knowledge: The person who held such person out have to prove that the person who has been held out had knowledge of the representation and he acted upon it.
- Partners in Profits: A partner may ask the other partners that he will share only the profits of the firm and not the losses, if the other partners agree with the same, he will become a partner is profit only.
- Minor Partner: According to the Indian Contract Act, a minor cannot enter into an agreement. But Indian Partnership Act, 1932 under Section 30 allow a minor to be admitted to the benefits of a partnership if all the partners consent to it.
Rights of a minor partner-
- He has the right to his share of the company’s profits.
- He may access the company’s accounts for inspection purposes.
Liability of a minor partner
- A minor’s liability will be only up to the extent of his share in the firm.
- A minor’s personal property cannot be attached by creditors.
Though the statute enables a minor to be a partner but it restricts him from suing the other partners for claiming profit and share of his property as long as he is in the firm. When he attains majority, he has to notify the partners through a public notice of his intention to be a regular partner or to withdraw his share from the partnership. If he fails to notify, he will be assumed and treated as a partner with all the liabilities and benefits as that of a regular partner. He will also be legally entitled to claim his share of property and profits from other partners.
- Other Partners: Apart from the types of partners mentioned above, there are other kinds of partners:
- Secret partner– The one whose relationship with the firm is not disclosed to the general public.
- Outgoing Partner– The one who decides to take voluntary retirement without dissolving the firm.
- Limited Partner– The one whose liability is only up to the extent of his contributions to the capital of the firm.