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Question

Discuss the various types of partners and indicate in which cases, the partners have unlimited liability ?


Solution

(1) Active Partners—Partners who take an active part in the management of the partnership firm. They contribute to the capital and shares, profits and losses and bear unlimited liability.

(2) Sleeping or Dormant Partners—A sleeping partner is the one who contributes capital, shares profits and losses of the business, but does not take part in the working of the concern. Sleeping partner is liable for the liabilities of the business like other partners.

(3) Secret Partner—Those partners whose association or relation with the firm is not known to the outsiders are known as secret partners. He contribute capital shares profits and losses, participates actively in the management, his liability is also unlimited.

(4) Nominal Partners—The nominal partners are not the real partners of the firm. These partners do not contribute capital, do not participate in the management, do not have unlimited liability, do not get any share in the profit on the loss of the firm. The nominal partner only lends his name. He is liable to outsiders for the debts which outsiders have given to the firm believing he is a partner in that firm.

(5) Partner by estoppel—The person who accepts that he is a partner in the partnership firm by his own words or conduct is known as a partner by estoppel. He does not contribute any capital, does not share profits and losses of the business but has unlimited liability towards third parties to pay back the loans, given to the firm believing that he is the partner to the firm.

(6) Partner by holding out—The partner who does not deny his acceptance as a partner by third parties and does not object when others call him as a partner in the firm, then he is called partner by holding out. He will be liable to pay back the debts which the company got by using his name.

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