Which kinds of partner does the Partnership Act recognise?
The Partnership Act recognises a partner who shares the business, whether or not that partner works in it. A partner who does not take part is still a partner, and is still liable to outsiders. A minor is not a full partner. A person held out as a partner can be liable to someone who relied on that.
Which partners?
| Position | What it means |
|---|---|
| Partner who takes part | Works in the business. The Act does not require a salary. Remuneration exists only if the deed gives it |
| Partner who does not take part | Often called a sleeping partner. Still shares profit and loss as the deed, or the Act, provides, and is liable to third parties |
| Person held out | Not on the deed, but represented as a partner. Liable under section 28 to a person who gave credit on that faith |
Where the deed says nothing, the shares and the lack of pay are on the rights page. What the deed should write is on the deed page.
What is a minor’s position?
Section 30 lets a minor be admitted to the benefits of a partnership, with the consent of all the partners. The minor’s share is liable for the acts of the firm. The minor is not personally liable. Within six months of attaining majority, or of learning of the admission, whichever is later, the minor may give public notice electing to become a partner or not. If that notice is not given, the minor becomes a partner.
What does sleeping not mean?
It does not mean limited liability, and it does not mean the person is outside the firm. An LLP partner’s position is a different Act. Whether the firm itself is at will or for a term is on the partnership-types page.
Frequently asked questions
Four questions cover a sleeping partner, a minor, holding out, and the profit share.
Is a sleeping partner free of the firm’s debts?
No. Not taking part in management does not remove liability to third parties. The deed can set the share of profit. It does not, by itself, cut off outside creditors.
Can a minor be a full partner?
No. A minor may be admitted to the benefits of partnership. The minor is not personally liable for the firm’s acts. At majority the minor chooses whether to become a partner.
Is a person who is only called a partner liable?
A person who by words or conduct represents himself, or allows himself to be represented, as a partner is liable as a partner to anyone who gave credit on that faith. That is section 28.
Does the label change the default share of profit?
No. Where the deed is silent, partners share profits equally and take no remuneration. The labels do not replace that rule.
Sources
Partners are the Partnership Act, 1932. Holding out is section 28. A minor admitted to the benefits is section 30. Equal sharing where the deed is silent is section 13.