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M.Ahmad Ali Types of Partners

There are several types of partners with differing levels of involvement and liability. Active partners manage the daily business, sleeping partners do not participate but are still bound, nominal partners are partners in name only, profit-only partners only share profits, minor partners have limited liability, and partners by estoppel represent themselves as partners. The rights and duties of partners are determined by partnership agreements, including rights to participate, inspect accounts, express opinions, and share profits/losses. Partners have duties to act diligently, indemnify fraud, use firm property for business, share personal gains, and provide information to other partners. Partners are jointly and severally liable for firm acts and debts.

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58 views4 pages

M.Ahmad Ali Types of Partners

There are several types of partners with differing levels of involvement and liability. Active partners manage the daily business, sleeping partners do not participate but are still bound, nominal partners are partners in name only, profit-only partners only share profits, minor partners have limited liability, and partners by estoppel represent themselves as partners. The rights and duties of partners are determined by partnership agreements, including rights to participate, inspect accounts, express opinions, and share profits/losses. Partners have duties to act diligently, indemnify fraud, use firm property for business, share personal gains, and provide information to other partners. Partners are jointly and severally liable for firm acts and debts.

Uploaded by

Wazeeer Ahmad
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 4

Subject: Business Law

Class: MBA-4
Submitted by: M. Ahmad Ali
Roll No: L-21206
Submitted to: Brig. (R) Muhammad Saleem
Topic: Types of partners and its implications

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Partners
The member of a partnership is called partners.it is not mandatory that all the partners are the
same or all the partners participate in the conduct of the business or share the profit or losses
equally. The partners are classified depending on the nature of work, the extent of liability, etc.
There are basically six types of partner:

 Active/managing partner:
The partner who takes participation in the conduct of the business daily. This partner is
also called an ostensible partner.
 Sleeping/Dormant:
He does not participate in the conduct of the business but he is bound by the conduct of
all the partners.
 Nominal partner:
He is a partner to the firm only by his name. In reality, he has no significant or real
interest in the firm.
 Partner in profit only:
The partner who agrees to share the profit but does not suffer losses. He is not liable for
any liabilities in case of dealing with the third party.
 Minor partner:
A minor cannot be a partner according to the Indian Contract Act, but he can be admitted
to get the benefit of all the partners gives the consent. He will share the profit equally but
his liability will be limited in case of loss of the firm.
 Partner by estoppel:
it means when the person is not a partner but he has represented himself by conduct, or
words to another person to be the partner then he cannot deny afterwards. Even though he
is not a partner but he becomes the partner by holding out or by estoppel.

Relation of partner with one another


All the partners have a right to create their own terms and condition with regard to the affairs of
the business in the partnership deed. The Indian Partnership Act has prescribed the provision to
govern the relation of partners and this provision is applicable in case when there is no deed.
The various rights of the partners are explained below:

Right to determine the relationship by contract


The partnership deed determines the general administration of the partnership like what will be
the profit-sharing ratio, who will do what work etc. The partnership contains the rights and duties
of the partners. Such a deed can be made either expressly or by necessary implication. For
example, if one partner looks into sales daily and other partners do not object to it, his conduct
will be presumed as the right of all the partners in the absence of written agreement. So, it can be
concluded that all partners create a right for their own.

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Rights of the Partners

• Right to participate in the conduct of business: Each partner has a right to


participate in the conduct of the business. A partner right to participate in business is curtailed in
a case where some of them only participate in the business affairs of the firm. this right can be
curtailed only when the partnership deed states so.
• Rights to access and inspect books and accounts: This right is also given to the
active and dormant partner. Each partner has a right to access and inspect the book of account of
the firm. In case of death of a partner, his legal heir can inspect the copies of accounts.
• Right to be indemnified: The partners have a right to be indemnified for the decision
taken in the course of the business. But such a decision is to be taken in the case of urgency and
should be of such nature that the ordinarily prudent person would take.
• Rights to express his opinion: Each partner has a right to express his opinion with regard
to the business affairs. They also have the right to participate in the decision- process.
• Rights to get interested on capital or advances: Generally, partners are not entitled
to get any interest on the capital that they invest. but when they agree to give interest, then such
interest would be paid from the capital. They are also entitled to 6%interest on the advances
made towards the business of the firm.
• Right to share profit and loss: The partners share the profit and losses equally in the
absence of any deed. But when there is a partnership deed prescribing the ratio of profit and
losses it be shared in accordance with the partnership deed.

Duties of partners

• Duty to act diligently: It is the duty of the partners to act with due care and diligence
because his actions will affect all other partners. If his willful act causes a loss or injury to other
partners, he is entitled to pay compensation to the affected partners.
• Duty to indemnify fraud: whenever any fraud is committed by partners then every
partner is liable to indemnify the firm for losses because the firm is liable for the wrongful acts
of the partners. If the fraud causes the losses to other partners, he is entitled to indemnify for the
loss caused.
• Duty to use the firm property exclusively for the purpose of business: The
partners can use the firm property for the purpose of the business but not for its personal purpose.
The partner must use the property in a lawful manner. they must not earn a person gains from
such property.
• Duty to hand over personal gains: All the partners should act towards achieving the
common goal. they must not engage in other profession or engage in any competitive business
venture. If they earn any personal gains from the conduct of business then they should hand to all
the partners.
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• General duties: It is the duty of all partners to make all the efforts to achieve a common
goal, to render a true account and provides all the information affecting a firm to partners, or his
representative.

Liabilities of Partners

i. Liability of a partner for acts of the firm:


Every partner is jointly and severally liable for all acts of the firm done while he is a partner.
Because of this liability, the creditor of the firm can sue all the partners jointly or individually.

ii. Liability of the firm for wrongful act of a partner:


If any loss or injury is caused to any third party or any penalty is imposed because of wrongful
act or omission of a partner, the firm is liable to the same extent as the partner. However, the
partner must act in the ordinary course of business of the firm or with authority of his partners.

iii. Liability of the firm for misutilization by partners:


Where a partner acting within his apparent authority receives money or property from a third
party and mis utilizes it or a firm receives money or property from a third party in the course of
its business and any of the partners mis utilizes such money or property, then the firm is liable to
make good the loss.

iv. Liability of an incoming partner:


An incoming partner is liable for the debts and acts of the firm from the date of his admission
into the firm. However, the incoming partner may agree to be liable for debts prior to his
admission. Such agreeing will not empower the prior creditor to sue the incoming partner. He
will be liable only to the other co-partners.

v. Liability of a retiring partner:


A retiring partner is liable for the acts of the firm done before his retirement. But a retiring
partner may not be liable for the debts incurred before his retirement if an agreement is reached
between the third parties and the remaining partners of the firm discharging the retiring partner
from all liabilities. After retirement the retiring partner shall be liable unless a public notice of
his retirement is given. No such notice is required in case of retirement of a sleeping or dormant
partner.

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