Pakistan study notes for Matric, Intermediate, B.A, B.COM BSC, M.A, BCS. Free Pakistani Urdu educational school, colleges and University notes.

CLASSES 0F PARTNERS

The different classes of partners are:

a. actual partner

b. partner by holding out

c. nominal partner

d. partner in profits only

e. working partner

f. dormant (or sleeping) partner

g. sub-partner

h. incoming partner

i. Outgoing partner

retired partner

expelled partner

insolvent partner

deceased partner

j. minor admitted to benefit of partnership.

 

(a) Actual (or Ostensible) partner

Definition: Actual (or ostensible) partner is a person who by an agreement with other persons either farms a partnership firm or who becomes a partner in an existing partnership firm and who actively participates in the conduct of the partnership business.

 

Characteristics: He has a fight to take part in the management of the business unless there is an agreement between himself and other partners that he should not. He is an agent of his c-partners for the purposes of the business of the firm. He binds himself and his co-partners, so far as third parties are concerned, for all the acts which he does in the ordinary course of business and En the name of the firm.

 

(b) Partner by or holding out

Definition-Section 28(1): A partner by holding out is one who by words spoken or written or by conduct represents himself, or knowingly permits himself to be represented, to be a partner in a firm, to any one, who has on the faith of such representation given credit to the firm, whether the person representing himself or represented to be a partner does or does not know that the representation has reached the person so giving credit,

 

(a) Person conducts as partner: When a person conducts himself in a manner so as to lead another to believe him to be a partner in a firm, although in fact he is not, and on that belief such other person gives credit, then he is estopped from denying that he is a partner.

 

Illustration: A, and B carry on business for profit and C a businessman of repute agreed to lend his name as a partner without contributing capital, labour or share in profits. C is liable to every person who gives credit to the firm on the bona fide belief that C is a partner.

(b) Person knowingly allowed himself: Where a person knowingly permits himself to be represented as a partner in a firm, he will be liable as a partner by holding out to any one who gives credit to the firm on the faith of such representation. Illustration: A and B carry on business in partnership. C who is not a partner in such firm allows A and B to represent him as their partner. C afterwards cannot escape liability as a partner.

 

Position in firm: A person who is a partner by holding out cannot claim any rights in the partnership. He does not become a partner in the firm and does not assume the status of an agent of other partners.

 

Conditions for holding out: in order to render a person who is not a partner, a person liable as a partner on the ground of estoppel or holding out the following conditions must be fulfilled:

 

a. Active representation by such persons In other words he must have, by words spoken or written or by his conduct represented himself to be a partner in the firm.

 

b. Tacit representation by such person i.e. he must have knowingly permitted himself to be represented to other persons to be a partner in the firm.

 

c. Alleged representation by others i.e. other person must have (a) knowledge of the alleged representation and (b) acted on the faith of such representation in giving credit to the firm.

 

d. Created credit must have been given to the firm on the faith of his representation,

 

e. Alleged representation: person seeking to avail himself of holding out must know about the alleged representation and rely upon it.

 

Example: A retiring partner who does not give public notice of his retirement and the continuing partners still use his name as a partner on letter-heads, bill or other documents; he is personally liable, on the ground of holding out, to third parties who give credit to firm.

 

(c) Nominal partner

Definition: A nominal partner is a person who lends his name and credit to the firm without having any real interest therein in the form of capital investment, sharing of profits or participation in the management of the business of the firm but is along with other partners, liable to outsiders for all debts of the firm.

Characteristics: A nominal partner is known to the world as a partner in the firm. He does not share in the profits of the firm. Such a partner may not be a party to a suit relating to the firm except those relating to negotiable instruments. He does not invest any capital in the firm. He does not take part in the management of the firm. He, along with the real partners, is liable to the outsiders for all acts and debts of the firm.

 

(d) Partner in profits only

Definition: A partner in profits only is one who under an arrangement with the co-partners gets a share of profits only and is not liable to contribute towards the losses although he is liable for all the debts of the firm.

 

Characteristics: Although such a partner is not required to share losses but if the firm incurs losses and other partners are unable to absorb the same wholly, he shall have to bear the remaining losses as the liability of the partners is joint and several and at the same time unlimited. Such partner generally does not participate in the management of the business. He is liable to third parties for all the acts of the firm. Since his liability is joint and several his Liability is unlimited.

 

(e) Working partner

Definition: A working partner is one who is actively engaged in the conduct of the business of the firm and with the consent of all other partners has control over it.

 

Characteristics: The existence of a working partner in a firm does not absoive the other partners who do not take any part in the management of the business, from liability for the debts of the firm.

 

He is actively engaged in the conduct of the business of the firm. He devotes his time and has control over the business. He and other partners who do not take active part in the carrying on business are equally liable for all the acts and debts of the firm.

 

(f) Dormant (or sleeping) partner

Definition: Dormant (or sleeping or secret) partner is a person who is in reality a partner in a firm but his name does not appear in any way as partner nor he is known to outsiders as such nor he takes active pan in the conduct of the business of the firm,

 

Characteristics: The position of a sleeping partner is similar to that of an undisclosed principal. Sleeping partner need not give a public notice of his retirement from the firm. He is not liable for any act of the firm done after his retirement or on dissolution of firm. He has no duties to perform, and consequently, his insanity will riot be a ground for dissolution, but he has a right to have access to he books of accounts and to examine and copy them. He does not take active part in the conduct of the business of the firm. He like other partners invests capital and shares in the profits of the business. A dormant partner is liable for the debts as much as an active partner.

(g) Sub-partner

Definition: A sub-partner is a person who under an arrangement with a partner in a firm shares the profits derived or received by such partner from the partnership firm.

 

Characteristics: Sub-partner is a stranger to the partnership firm. Since sub-partner is in no sense a partner in the original firm he has no right against the firm nor other partners nor he is liable for any acts of the firm. He cannot represent himself anywhere as a partner in the firm. He is no way connected with the firm and cannot represent himself   as a partner of the firm.

 

(h) Incoming partners

Definition [Sec 31]: incoming partner is a person who is admitted as a partner into an already existing firm either with the consent of the existing partners, or in accordance with a partner is a     contract between partners permitting the introduction of a partner (or partners).

 

A new partner can be admitted at any stage with a view to obtain more capital, fresh skill know-how, experience, connection or retention of faithful employees.

 

Facts: A and B were partners in a firm. One of term of   partnership deed was that A could introduce into the partnership of his sons attaining the age of 21 years. A’s sons C attained an age of 21 years and he proposed to make him partner.

 

Held, B could not prevent C from being a partner as clause in the partnership agreement operated as consent.

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