Submitted by: Hashim khan

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Types of partners and it’s implications
Introduction
A partnership is a single business in which two or more people share ownership. Each partner
contributes to all aspects of the business, including money, property, labor, or skill. In return,
each partner shares in the profits and losses of the business.
Because partnerships entail more than one person in the decision-making process, it’s important
to discuss a wide variety of issues up front and develop a legal partnership agreement. This
agreement should document how future business decisions will be made, including how the
partners will divide profits, resolve disputes, change ownership (bring in new partners or buy out
current partners), and how to dissolve the partnership. Although partnership agreements are not
legally required, they are strongly recommended, and it’s considered extremely risky to operate
without one.

Partnership
A partnership is a form of business where two or more people share ownership, as well as the
responsibility for managing the company and the income or losses the business generates. That
income is paid to partners, who then claim it on their personal tax returns the business is not
taxed separately, as corporations are, on its profits or losses.
A partnership in a business is similar to a personal partnership. Both business and personal
partnerships involve:
 Pooling money toward a common purpose
 Sharing individual skills and resources, and
 Sharing in the ups and downs of profit and loss.

Liability
Full partners in a partnership, unlike shareholders in a limited liability company, are personally
liable for the business' losses and debts. This means that people and entities that are owed money
- creditors - can go after their personal assets and savings, including their homes, to get their
money back. There are some types of limited partnerships or limited liability partnerships in
which some of the partners are not personally liable for the firm's losses.

Partner
A partner can mean one thing in a law or accounting firm, and something different in a company,
corporation, international arrangement between two nations, or a joint venture. A business
partner is a person or commercial entity which has some kind of alliance with another person or
commercial entity.

Types of Partners
There may be different types of partners in a partnership firm , The important classification of
partners is given below
  Active partner
 sleeping partner
 Nominal partners
 Partner in profits only
 Senior partner
 Junior partner
 Secret partner
 Minor partner
 Partner by Holding Out
 Partner by Estoppel
 Limited Partner

Active or Actual Partners

Partners who take an active part in the conduct of the partnership business are called “actual” or
“ostensible” partners. They are full fledged partners in the real sense of the term. Such a partner
must give public notice of his retirement form the firm in order to free himself form liability for
acts of the firm after his retirement.

Sleeping or Dormant Partners.

Sometimes, there are persons who merely put in their capital (or even without capital they may
become partners) and do not take active part in the conduct of the partnership business. The are
known as ‘sleeping’ or ‘dormant’ partners. They do share profits and losses (usually less than
proportionately), have a voice in management, but their relationship with the firm is not
disclosed to the general public. They are liable to the their parties for all acts of the firm just like
an undisclosed principal.

Silent Partners
Those who by agreement with other partners have no voice in the management of the partnership
business are called ‘silent’ partners. They share profits and losses and are fully liable for the
debts of the firm.

Partner in Profits Only

A partner who has stipulated with other partners that he will be entitled to a certain share of
profits without being liable for the losses, is known as ‘partner in profits only’. As a rule, such a
partner has no voice in the management of the business. However, his liability vis-à-vis third
parties will be unlimited because in India we cannot have limited partnership.

Sub- Partner
When a partner agrees to share his share of profits in a partnership firm with an outsider, such an
outsider is called a sub-partner. A sub-partner has no rights against the firm nor he is liable for
the debts of the firm.
Secret partner
This type of partner contributes capital and takes active part in the management of the firm ' s
business . He shares in the profits and losses of firm and his liability is unlimited . However , his
connection with the firm is not known to the outside world .

Nominal or ostensible or quasi partner

Such a partner neither contributes capital nor takes part in the management of business. He does
not share in the profits or losses of the firm. He only lends his name and reputation for the
benefit of the firm. He represents himself or knowingly allows himself to be represented as a
partner. He becomes liable to outsiders for the debts of the firm. A nominal partner can be of two
types:
 Partners by estoppel
 Partners by holding out

Partner by estoppels
A person who by his words ( spoken or written ) or conduct represents himself as a partner
becomes liable to those who advance money to the firm on the basis of such representation . He
cannot avoid the consequences of his previous act .
Suppose a rich man , Mohan , is not a partner but he tells Sohan that he is a partner in a firm
called Shipra Enterprises . On this impression sells good worth Rs . 20 , 000 to the firm . Later
on the firm is unable to pay the amount . Sohan can recover the amount from Mohan . Here ,
Mohan is a partner by estoppels .

Partner by holding out

When a person is declared as a partner and he does not deny this even after becoming aware of it,
he becomes liable to third parties who lent money or credit to the firm on the basis of such a
declaration.
Suppose, Shipra tells Sohan in the presence of Mohan that Mohan is a partner in the firm of
Shipra Enterprises. Mohan does not deny it. Later on Sohan gives a loan of Rs. 20,000 to Shipra
Enterprises the basis of the impression that Mohan is a partner in the firm. The firm fails to repay
the loan to Sohan. Mohan is liable to pay Rs. 20,000 to Sohan. Here, Mohan is a partner by
holding out.

Minor as a partner
 A minor is a person who has not completed 18 years of minor cannot become a partner because
he is not qualified to enter into a contract. But he may be admitted to the benefits of partnership
with the mutual consent of all the partners. On being so admitted, a minor becomes entitled to a
share in the profits of the firm. He can inspect and copy the books of account of the firm but he
cannot take active part in the firm's management. His liability is limited to the extent of his share
in the capital and profits of the firm. He cannot file a suit against the firm or its partners to get his
share except when he wants to disassociate himself from the firm. After becoming a major, the
minor give public notice within six months if he wants to break off his connections with the
partnership firm. If he does not give such a notice within six months or if he decides to remain in
the firm, he becomes liable to an unlimited extent for the debts of the firm from the date admitted
to the benefits of partnership. He also becomes entitled to take active part in the management of
the firm's business.

Limited partner
The liability of such a partner is limited to the extent of his share in the capital and profits of the
firm. He is not entitled to take active part in the management of the firm's business. The firm is
not dissolved in the event of his death, lunacy or bankruptcy.
TYPES OF PARTNER - DEFINITION

Type of Capital
Management Share in profits/losses Liability
Partner Contribution
Unlimited
Active Contributes capital Participates in management Shares profits/ losses
liability
Sleeping or Does not participate in Unlimited
Contributes capital Shares profits/ losses
dormant management liability
Participates in management, Unlimited
Secret Contributes capital Shares profits/ losses
but secretly liability
Does not contribute Does not participate in Generally does not share Unlimited
Nominal
capital management profits/ losses liability
Partner by Does not contribute Does not participate in Does not share profits/ Unlimited
estoppel capital management losses liability
Partner by Does not contribute Does not participate in Does not share profits/
holding out capital management losses