As per Black Law dictionary, a partner is a member of a firm or co-partnership; who has united with others in order to form a partnership in business. [i]
This being said, there are total of 7 types of Partner which can be taken under Indian Partnership Act, though the Act itself doesn’t specify any of it and is certainly not very much exhaustive in regards to types of partner as it doesn’t specify any type of partnership which the partners want to design for themselves. So, the types of Partners on the Occurrence in Management activities, third-party influence, sharing of profit and losses, liability, etc. are as follows –
ACTIVE PARTNER – An active partner mainly takes part in the day-to-day running of the business and also takes active participation in the conduct and management of the business firm. He carries the daily business activities on behalf of other partners. He may act in different roles such as manager, advisor, organiser and controller of certain affairs in the firm. To be concise, he acts as an agent of all the other partners in order to run main functions relating to the business.
His role is of great importance in the firm, and so while he retires the partnership firm he shall give public notice for the same. If he forgets to give public notice, he shall be liable to the obligations and debts incurred by the firm. Also, he will be liable for the acts done by the partners in the future.
SLEEPING PARTNER – A sleeping partner or we can say a dormant partner, does not participate in the activities of a firm, normally, these occurrence of these partner doesn’t prima facie affects the working of any of the partners or firm. Person who have money and interest in the firm, but who can’t afford to be present in the firm daily, due to lack of time can become a sleeping partner. Though, sleeping partner is liable for the acts of his partners.
His role is exactly similar to that of active partner as like others, it brings share capital to the firm. Though, if he retires then the Public Notice is to be provided.
NOMINAL PARTNER – A nominal partner does not have any real or significant interest in the partnership firm. In simple words, he is only lending his name to the firm and does not have any role in the management of the firm. On the strength of his name, the firm can promote its sales in the market or can get more credit from the market. Just similar to the celebrities being the Brand Ambassadors of different Companies, who shares their famous name and goodwill with the firm.
This partner never shares the profits or losses as they are not getting any capital for the firm, but, this doesn’t mean he won’t be liable to the third party.
SUB-PARTNER – A sub-partner is a partner who associates someone else in his share of the firm. He gives a part of his share to the person. It is important to note that, the relationship is not between the sub-partner and the partnership firm but is between the partner who has hired him and the sub-partner. Therefore, a sub-partner is a non-entity of the firm and he does not hold any liability towards the firm.
A sub-partner usually agrees to share profits which are derived from the third party. Such a partner cannot represent himself as a partner in the original firm. Furthermore, he doesn’t reserve any right in the original firm nor he is liable for acts done by partners of the firm. He can only claim his agreed share of profits from the partner who has contracted him to be a sub-partner.[ii]
PARTNERS IN PROFIT ONLY – As the name suggests that this partner will only share the profits of the firm and won’t be liable for any losses incurred by the firm. In case if such partner deals with the third party then such partner will not be liable for any sort of losses faced by the firm because of him.
This partner is not allowed to be a part of Management as they are only liable for profit and goodwill of the firm.
PARTNER BY ESTOPPEL – Doctrine of estoppel is one of the most common and famous doctrine which if put in a simple phrase says that – “the person can’t deny from his statement”.
A partner by estoppel is a partner who displays by his words, actions or conduct that he is the partner of the firm. In a very similar manner as it was in Agency by Ostensible Agent, which can sound vague and fraudulent as he/she is not a partner in the firm, but is displaying so. To be a partner there has to be an agreement, this is an example of an Implied Agreement and hence, the person claiming to or fraudulently trying to become the partner is now liable to share the losses incurred.
If any suit is filed against the firm, he will be equally liable. As it works on the principle of – “All partners are Jointly and Severally liable”.
Holding-out refers to “show-off” or “presenting a show”. Now to establish this, it shall be proved that the representation made by the person was Spoken, written or through Conduct it was implied and that the person was fully aware about this representation and its consequences.
In the case of Lake v. Dupe of Argill (1944), it was held that a Retiring partner can become the partner by holding out.
OUTGOING PARTNER – Retirement has always been an option for a firm to work on continuously for long periods without being dissolved. As it is, the outgoing partner is a partner who voluntarily takes retirement from the firm without dissolving it. Since he leaves the existing firm, therefore he is called an outgoing or retiring partner.
Though, he is liable for all his debts and obligations incurred before his retirement.
Similarly, an Incoming partner is the one who voluntarily or by business means enters in a firm to share the liabilities and debts of a firm.
These 7 types of partners are the ones who are major, i.e., more than the age of 18 years or equal to it. “Minor can’t become a Partner in a firm”.[iii]
[i] https://blog.ipleaders.in/types-partners-partnership-act/
[ii] https://blog.ipleaders.in/types-partners-partnership-act/amp/
[iii] Commissioner of Income Tax v. Dwarkadas Khetan, 1960 AIR 680 https://indiankanoon.org/doc/1662200/#:~:text=It%20was%20held%20that%20the,partnership%20by%20the%20two%20adults.
