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Unit 11: Types of Partners

partner is liable like any other partner of the firm for the debts of the firm, even though his Notes

existence is kept a secret from the parties dealing with the firm. His position may well be

compared with an undisclosed principal.

3. Nominal partner: Sometimes persons lend their names and credit to the firm but neither
contribute any capital nor take active part in the management of the business. Such partners
are called nominal partners. As the title suggests, such persons are partners only in name.

His name is used as if he were a partner of the firm, though actually he is not.

4. Partner in profi ts only: If a partner is entitled to a certain share of profit without being

liable for the losses, he is known as partner in profit only. He is not allowed to take part in
the management of the firm, but is liable for all the acts of the fi rm.

5. Sub-partner: A sub-partnership comes into existence when one of the partners agree to

share the profits derived by him from the firm with a third person. This third person is
called a ‘sub-partner’.
6. Partner by estoppel or holding out: Sometimes a person who is not a partner in a fi rm may
under certain circumstances, be liable for its debts as if he were a partner. Such a person
may be either a partner by estoppel or a partner by holding out. If any person behaves in
such a way that others consider him to be a partner, he will be held liable to those persons

who have been misled and lent finance to the firm on the assumption that he is a partner.

Such a person is known as a partner by estoppel. He is not a true partner of the firm is and
also not entitled to any share in the profits of the fi rm.

Example: A partner retires from a firm but does not give notice of his retirement. He is
a partner by holding out.

7. Working partner: A partner, because of his special qualifications, may be assigned the
management and control of business. Such a partner is known as ‘working partner’. A
working partner normally receives a fixed amount of salary, besides his share in the profi ts

of the firm. Other partners, however, remain liable to the third parties for all his acts.
8. Incoming partner: Section 31 provides that subject to the contract between the partners and
to the provisions of s.30 (which deals with the position of a minor partner) a person can

be introduced as a partner into a firm with the consent of all the existing partners. Thus, a
person who is admitted as a partner into an already existing firm with the consent of all the

existing partners is called an ‘incoming partner’.

9. Outgoing partner: A partner who leaves a firm in which the rest of the partners continue to
carry on business is called an ‘outgoing’ or retiring partner. A partner may retire: (i) with
the consent of all the other partners; (ii) in accordance with an express agreement by the
partners; or (iii) where the partnership is at will, by giving notice in writing to all the other
partners of his intention to retire [s.32 (1)].
10. A retiring partner continues to remain liable to third parties for all the acts of the fi rm until
public notice is given of his retirement. Such a notice may be given either by the retiring
partner or by any member of the reconstituted fi rm.

11.3 Dissolution

11.3.1 Dissolution of Firm and Dissolution of Partnership

Sec.39 provides that the dissolution of partnership between all the partners of a firm is called the

“dissolution of the firm”. It follows that if the dissolution of partnership is not between all the

partners, it would not amount to “dissolution of firm”, but it would nevertheless be “dissolution

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