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Corporate and Business Laws




                    Notes          (vii) Liability of firm for misapplication by partners: Section 27 provides that a firm is liable to
                                       make good the loss where (a) a partner acting within the scope of his apparent authority
                                       receives money or property from a third party and misapplies it, or (b) the firm in the
                                       course of its business receives money or property from a third party and the same is
                                       misapplied by any of the partners while it is in the custody of the firm.

                                   6.5.6 Types of Partners

                                   There are different types of partners. A person who deals with a firm may have to ascertain, at
                                   some time or the other (such as where the firm has made a default) as to not only who the partners
                                   are, but also to what extent each is liable. The liability is different for different classes of partners.
                                   1.  Actual, active or ostensible partner: Such a partner is a person who becomes a partner by
                                       an agreement, brings capital, actively participates in the functions and management of the
                                       business and shares its profits and losses. He binds himself and other partners, so far as
                                       third parties are concerned, for all the acts done by him in the ordinary course of the
                                       business and in the name of the firm. Such a partner must give a public notice of his
                                       retirement from the firm in order to absolve himself from the liability for the acts of the
                                       other partners done after his retirement.
                                   2.  Sleeping or dormant partner: A sleeping partner is one who does not take an active part in
                                       the business of the firm. Sometimes he is called as a financing partner as he contributes to
                                       the capital only but does not participate in the management of the business. Such a partner
                                       is liable like any other partner of the firm for the debts of the firm, even though his
                                       existence is kept a secret from the parties dealing with the firm. His position may well be
                                       compared with an undisclosed principal. But a sleeping partner, unlike other active or
                                       known partners, is not required to give public notice in order to absolve himself from
                                       liability for the acts of other partners after he ceases to be a partner. He is not liable for any
                                       act of the firm after he ceases to be partner even if he does not give a public notice. Also his
                                       insanity or any such other disability does not dissolve the firm.
                                   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. He is not
                                       entitled to share profits of the firm but is liable for all the acts of the firm as if he is the real
                                       partner.
                                   4.  Partner in profits 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 firm.
                                   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’. A sub-partner is not a partner in the eye of law and therefore, has no
                                       right against the firm. He is also not liable for the acts of the firm nor can he bind the firm
                                       by his acts.
                                   6.  Partner by estoppel or holding out: Sometimes a person who is not a partner in a firm 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 firm.




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