What are the different types of Partners in a Partnership Firm?

Types of Partners in a Partnership Firm

• Nominal partner
• Active partner
• Partner by holding out or estoppel
• Minor as a partner
• Partners in profit only
• Sub partner
• Sleeping partners

Nominal partner – A nominal partner is an individual who has no genuine stake in the firm’s operation or how it operates, nor does he have any rights to the earnings. He normally has no say in the operations or management of the company, but he is liable to outsiders as a true partner. He simply gives his name to the firm for it to benefit from his or her reputation and name, based on that an individual is treated as a genuine partner in a firm.

Active partner – Partner who is actively involved in the partnership firm’s management and other vital functional areas. With his active engagement and contribution as a partner, an active partner determines how the firm functions. If the active partner decides to retire, he must notify the public of his decision. If an active partner fails to do so, he will be held accountable for the actions of other partners after his retirement. The firm and the partners are bound by any action done by the active partner in the ordinary course of business.

Partner by holding out or estoppel – If a person openly states to another that he is a partner through his words or actions, he will not be able to back out later. As a result, if a situation arises, such a person may be held accountable to third parties for the firm’s debts.

Minor as a partner – A contract, which is a common agreement between two or more persons, creates a partnership. Contracts cannot be entered by minors. However, under the Indian Partnership Act, a minor might be introduced as a partner if it is only for receiving advantages. A minor partner has access to the firm’s accounts and is entitled to a portion of the earnings. They do not have the right to sue the partner as long as he is a partner in the firm.

Partners in profit only – A partner enters a partnership firm with the understanding that as a partner, he or she will solely share profits and will not be accountable for any losses. However, the liability of partners in a partnership firm is several, and a joint, partner will be held liable alongside the other partners. As a result, if the firm suffers a loss and the other partners go bankrupt, a third party could hold this partner accountable. The said partner can then reimburse the third party for the arrangement’s contribution.

Sub partner – A sub-partner is a partner who agrees to share his profits from the corporation with a third party. He is unable to identify himself as a founding partner of the firm. He has no rights to the original firm, and he is not accountable for the firm’s actions. He is solely entitled to the agreed-upon profit split from the contracting partner.

Sleeping partners – A sleeping partner, as the term implies, is one who is not involved in the day-to-day management or operational parts of the partnership firm, but may be consulted when critical decisions are made. This partner’s participation may be unknown to outsiders, yet they invest in the firm by giving a significant amount of capital. In the event of a debt, the sleeping partner handles paying it on behalf of the company. It is not necessary for an inactive partner to file a public notice to announce his retirement. He is unable to withdraw pay because he is not involved in the operations.