Types of Partners in the Partnership firm under the Partnership act.
Types of Partners in the Partnership firm under the Partnership act.

Types of Partners in the Partnership firm under the Partnership Act.

(1) introduction:

In a partnership, two or more people join together with the business idea, and they agree to share the profit and loss from the firm business. As per the understanding and the nature of partnership business, various types of partners can be divided.

There is not always happen that a partner of a partnership firm commonly joins with the same purpose or common intention to share the profit, loss, and liability.

The partners may be different on the basis or nature of the business. As well various types of partners can join the partnership venture.

The nature or concept of business can be different. The partners can be categorized into various partners in the partnership firm.

This article addresses various types of partners under the Partnership Act.

(2) The definition of partner and partnership firm:

The Partnership Act 1932, section 4 defines the definition of a partnership, partner. According to the definition of “partnership”, “partner”, “firm” and “firm name”.—’’ Partnership” is the relation between persons who have agreed to share the profits of a business carried on by all or any of them acting for all. Persons who have entered into a partnership with one another are called individually “partners” and collectively a “firm”, and the name under which their business is carried on is called the “firm name”.[1].

(3)  Types of partners: 

According to the nature of the business and the understanding between the partners, the following kinds of partners can be categorized regularly. After all, one thing is the note that there is no restriction on any partnership to choose a partner as per the desire of partners in the partnership act.

(1) Active or managing partner:

As per the name of an active or managing partner, this type of partner takes an active part in the firm business. And run the business of the firm in day-to-day activities.

Such a type of partner is a part of the management of the firm business and runs daily business activities on behalf of all or other partners. As well, his act is defined as an agent of another partner.

He may conduct different activities as a manager, advisor, and sometimes as a whole controller of the firm business. The active partner plays a significant role in the firm.

That’s why when he wants to retire from the firm, he must publish public notices about his retirement because he has done all acts on behalf of other partners. By this, he can absolve himself of all liabilities that are acted upon by other partners.

If he does not issue such notice of his retirement, he shall be liable for all acts and liabilities done by other partners after his retirement.

(2) Nominal partner:

A nominal partner is a kind of partner that has no interest in the firm. He does not invest capital, and he does not share the profit of the firm business.

The firm aims to involve such a type of partner to get more credibility in the market. Through this type of partner, the firm can easily compete with the market competition and get more sales.

Such a type of partner leads his name to the firm. However, he can not escape his liabilities of the firm. He will be liable to third parties for the act he or any other partners do.

(3) Sleeping partner or dormant partner:

This type of partner does not play an active part in the firm business or participate in running the business. Although, he has invested money and not invested his time and efforts in the firm. That’s the reason he becomes a sleeping or dormant partner.

He is enabled to share the profit and loss of the firm like other partners. If he wants to retire from the firm, there is no need to release a public notice.

(4) Partner by estoppel: 

A partner by estoppel means a partner who is not a partner but behaves by the act, words, or conduct like a partner. Such a partner is held out through representation that he is a partner, even if he is not a legal partner.

This type of partner enables the firm to gain more credit and financial benefits and is liable for that act because of his performance as a firm partner.

Here, two conditions must be required to establish that concept. The first is that a person must represent him as a partner by action, conduct, words, or writing as a partner of the firm. Second, third parties must prove that they have known him as a partner by his representation.

(5) Partner in profit:

A person who becomes a partner of the firm to share a profit part is only called a partner in profit. This type of partner is liable for a third party but only for the profit part. His liability would not count in the losses of the firm business.

Generally, such a type of partner joins as a partner for investing capital. It also creates goodwill that makes it more efficient to grow the firm business. This type of partner does not take part in the firm management.

(6) Minor partner:

We can say that a minor means a person who has not attended the majority as per the eye of the law that is called minor. We refer to the Indian Majority Act 1875 Section 3, which clearly says that a person 18 years is called a major in the law.

According to the provision of the Indian Partnership Act, There is no restriction to add a minor as a partner to the firm. However, we should note that he can be added as a partner for the beneficiary. Adding him as a  partner in the firm consent of all partners is required.

When we refer to the provision of section 11 of the Indian Contract Act 1872, which clearly says that a contract made by a minor is not valid in the law, and such a contract would be treated as a void agreement.

However, according to the provision of the Indian Partnership Act 1932, section 30 clearly says that a minor can be admitted as a partner of the partnership firm for the beneficiary purpose with the consent of all others.

It means the liability of a minor partner is limited to his share of the firm. In the case of loss of the firm, other private property of a minor cannot be attached.

Here, one notable thing we should note is that when a minor attends the age of majority within six months, he needs to decide whether to continue to become a partner of the firm or retire. He can declare his desire by publishing a public notice.

(7) Secret partner: 

A secret partner is a partner who keeps his membership as a partner but keeps it secret from outsiders. We can say that the role of such type of partner is a member between the active and sleeping partner in the firm.

He plays an active part in the running businesses of the firm. If we talk about his part of liabilities in the firm, it is also unlimited like other active partners because he also shares the profit and losses of the firm business.

(8) Incoming Partner:

An incoming partner is a person who enters into the partnership firm as a new partner. The main thing we should know is that a new partner will come into a partnership firm with the consent of all others.

A new partner who enters as a partner in an existing firm is not liable for the creditors or any liabilities of the firm done before he joined as a partner.

(9) Outgoing partner:

There is no bar for the partners to leave or retire from the firm without dissolving that. If a partner wants to retire from the partnership, he can leave it. Such a type of partner is known as an outgoing partner.

A partner who wants to retire from the firm must release a press note by publishing a public notice he has to state his intention to retire from the firm before taking his retirement.

Thus, his liabilities and debt will be accrued only before his retirement. However, it will continue if he fails to release a public notice, which is mandatory for him.

(10) Sub-partner:

This type of partner is not directly involved with the partnership firm. This means he is a sub-partner and is associated with anyone else in his share in the partnership firm. He is not involved in the firm and thus does not create any relationship with the firm. But he creates a relationship between himself and a partner.

As a sub-partner, he can not present himself as a partner of the firm and does not have legal rights to the partnership firm. That’s why he is not liable for the debts or liabilities of the firm. However, he can claim his part of the share, which is agreed upon as per his contract as a sub-partner.

(4) Conclusion:

The nature or concept of business can be different, and according to that concept, the partners can be categorized into various types of partners in the partnership firm.

Reference:  

(1) The Partnership Act 1932, section 4.

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