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Question

What is meant by 'partner by estoppel'? Explain.

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Solution

A partner by estoppel is a person who gives an impression to others that he/she is a partner of the firm through his/her own initiative, conduct or behaviour. Such partners are held liable for the debts of the firm because, in the eyes of others, they are considered partners, even though they do not contribute capital or take part in its management. e.g., Mr Sharma is a friend of Mr Mathur who is a partner in a pharmaceutical firm— Health First. On Mr Mathur's request, Mr Sharma accompanies him to a business meeting with Wellness Pharmaceuticals and actively participates in the process of negotiation for a business deal and gives the impression that he is also a partner in Health First. If credit is extended to Health First on the basis of these negotiations, Mr Sharma would also be liable for repayment of such debt, as if he is acting as the partner of the firm.


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