by In a partnership firm, not all partners have the same role, liability, or level of involvement. The Indian Partnership Act, 1932 recognizes several types of partners based on their contribution, participation, liability, and visibility.
-
Active Partner (Actual Partner)
An active partner is directly involved in the day-to-day operations of the business. They take part in decision-making, management, and represent the firm in dealing with third parties. Active partners have unlimited liability and are jointly and severally liable for the debts of the firm. If they wish to retire, they must give public notice; otherwise, they may still be held liable for the firm’s future obligations.
-
Sleeping Partner (Dormant Partner)
Sleeping partner contributes capital to the business but does not participate in daily management or operations. They remain inactive or “silent” in the running of the firm. Despite their non-involvement, they share in the profits and losses and have unlimited liability. However, they are not required to give public notice at the time of retirement since they were never known to outsiders.
-
Nominal Partner
Nominal partner does not contribute capital or take part in management or share profits. They simply allow their name to be used as a partner, often to boost the firm’s reputation or credibility. Though they don’t benefit financially, they are liable to third parties who deal with the firm under the impression that they are real partners. Hence, they may be held liable for firm’s debts.
-
Partner in Profits Only
This type of partner agrees to share only the profits of the firm and not the losses. They may or may not be involved in business operations. Their liability is still unlimited in relation to third parties. This form of partnership is usually found in special arrangements where the partner provides capital or expertise but is protected from loss-sharing through an agreement.
-
Minor Partner
A minor (under 18 years) cannot be a partner by contract, but under Section 30 of the Partnership Act, a minor can be admitted to the benefits of partnership with the consent of all partners. A minor partner shares profits and has access to accounts but is not personally liable for losses. However, upon attaining majority, they must decide within six months whether to become a full partner and inform the firm.
-
Partner by Estoppel or Holding Out
A person who represents themselves or allows others to represent them as a partner is known as a partner by estoppel or holding out. Even if they are not a real partner, they can be held liable to third parties who relied on this representation in good faith. This protects outsiders who enter into contracts assuming the person is a partner.
-
Secret Partner
Secret partner is involved in the firm but does not publicly disclose their partnership status. They share in profits and liabilities like any other partner and may participate in management, but their identity is kept hidden from outsiders. If the firm becomes insolvent, secret partners are also liable to creditors. Their legal position is similar to an active partner, though not publicly acknowledged.
