Types of Partners

A partnership is formed when 2 or more persons collaborate and split the profits from a business or profession. However, one should not always assume that all partners share equally in the firm’s work, profits, or even liabilities. In fact, there are various types of partners based on their liability or participation in the firm – such as an active partner or a dormant partner, for example.

In India, the ‘Indian Partnership Act 1932’ governs all facets and functional areas of the partnership. According to this specific law, a partnership is an association among two or more individuals or parties who have agreed to share the profits generated by the company under the oversight of all the members or on their behalf.

A Partnership Firm’s Characteristics

The following are some distinguishing characteristics of partnerships:

• Agreement- Partners who actually start this business must enter into a formal mutual contract. This agreement is typically written in accordance with government act norms.

• Number of Partners- The maximum number of partners for a financial services Partnership business is ten, as according to the Section 11 of the Indian Partnership Act of 1932. Furthermore, for other Partnership businesses, this number rises to 20.

• Profit Sharing- One of the central features of a partnership is the ability to generate and distribute profits among partners in accordance with agreed-upon ratios. However, if no such clause is included in the agreement, the revenue will be distributed equally.

What are the types of partnership

Different types of partnership have a different role to play altogether. In this section, we will understand how all the types of partnerships will help you form a business and sustain along on a joint panel while we explain the types of partnership. 

1. Managing/Active Partner

This is one of the types of partnership business in which a single person or entity manages the business. The managing partner must be involved in all aspects of the business. An Ostensible Partner is such a partner. These types of partnership partners oversee the day-to-day operations of the business on behalf of the other partners.

If an active partner in a business wishes to leave the partnership, he first must give public notice of his intention. He would be free of the responsibilities and measures taken by other partners following his departure if he gave the notice. Such a partner is liable for each and every action being taken in the company until retirement with a pension.

2. Dormant/Sleeping Partner 

A latent partner in the company is one who is not involved in the day-to-day operations of the company. These are the partners who only contribute capital to a company and do not take part in management. In the partnering form of business organisation, hibernating or sleeping partners are tightly tied by the actions of all other partners.

Dormant partners continue to own a portion of the firm’s profits and losses. The above type of partner is exempt from the requirement to start giving public notice of retirement.

3. Designated Partner

Nominal partners are those who have no financial stake in the partnership. In other words, he is simply putting his name on the partnership agreement. A partner is not required to contribute capital to the firm and is not entitled to profit sharing in these types of partnership businesses. Nominal partners, on the other hand, are still liable to third parties for the actions of their business partners.

4. Profit-sharing partners only

These types of partners have no liabilities in a company. They are only obligated to a portion of the profits. Even when trying to deal with 3rd parties, the partner is only liable for profit-related issues. He will not be held accountable for any other decisions made by the business.

5. Partner by Estoppel 

When a person declares (through action or words) to another partner that he wishes to participate as a partner in the firm, this is referred to as partner by estoppel. Such partners cannot later claim that they were not a business partner. These types of partners in partnership firms are not actually partners, but have acted as such through Estoppel.

6. Minor Partner

A minor (someone under the age of 18) cannot be an official sponsor in any type of partnership firm, according to the Contract Act. Such partners, however, may be obligated to a collaboration if other business associates consent. A minor can participate in a company’s profits, but his responsibility for the company’s losses is restricted to his equity of the capital.

When a minor partner reaches the age of 18, he has six months to decide as to if he wants to remain a partner in the firm or leave. In both instances, he must notify the public via a public notice.

Conclusion 

Every owner in a partnership adds something to the firm’s success. These can take the form of ideas, assets, money, or a combination of the three. Profits and losses are shared by Partnership owners in terms of the relative investments.