9.

Kinds of Partners;
Partners can be classified from different start points-on the basic of business
interest, on the basic of public liabilities and , on the basic of managerial
responsibilities. The important categories of partners are as follows :-
(i) Active or Actual Partner : Partners who take an active part in the conduct of
the partnership business are called ‘actual’ or ‘ostensible’ partners. They are full-
fledged partners in the real sense of the term, such a partner must give public notice
of his retirement from the firm in order to free himself from liability for acts after
retirement.
(ii) Sleeping or Dormant Partner : Sometimes, however, there are persons who
merely put in their capital (or even without capital they may become partners) and
do not take active part in the conduct of the partnership business. They are known
as ‘sleeping’ or ‘dormant’ partners. They do share profits and losses (usually less
then proportionately), have a voice in management, but their relationship with the
firm is not disclosed to the general public. They are liable to the third parties for all
acts of the firm just like an undisclosed principal. They are, however, not required
to give public notice of their retirement from the firm.
(iii) Partner in Profits Only : A partner who has stipulated with other partners that
he will be entitle to a certain share of profits, without being liable for the losses, is
known as ‘partner in profits only’. As a rule, such a partner has no voice in the
management of the business. However, his liability vis-à-vis third parties will be
unlimited because in India we cannot have ‘limited partnership’.
(iv) Sub-Partner: When a partner agrees to share of profits in a partnership firm
with an outsider such an outsider is called a sub-partner. Such a sub-partner has no
rights against the firm nor he is liable for the debts of the firm.
(v) Partner by Estoppel : If a person represents the outside world, by words
spoken or written or by his conduct or by lending his name that he is a partner in a
certain partnership firm, he is then estopped from denying his being partner, and is
liable as a partner in that firm to anyone who has on the faith of such representation
granted credit to the firm.
Kinds of Partnership Firms:

Partnership firms can be classified as below :

(i) Partnership-at-Will : A partnership is called partnership-at-will when (a) the partnership

is formed to carry on business without specifying any period of time, and
(b)no provision is made as to when and how the partnership will come to an end. The life of
such a partnership continues as long as the partners are willing to continue it as such. It can be
dissolved by any partner giving a notice to the firm withdrawing from the partnership or
terminating the partnership.

(ii) Particular Partnership : A partnership established for a stipulated period or for the
completion of a specified venture comes to an automatic end with the expiry of the stipulated
period or on the completion of the specified venture, as the case may be.

(iii) Joint Venture : It is organized for completing a specific task or venture during a specific
period. A joint venture is a partnership without the use of a firm name, limited to particular
venture in which the persons concerned agree to contribute capital and to share profits or
losses. It may involve joint consignment of goods, an underwriting transaction, a speculation in
shares, construction of a building, or any similar form of enterprise.

(iv) Limited Partnership : In limited partnership, the liability of the partners is limited except
that of one or more partners. The partners whose liability is limited to the extent of capital
contributed by them are referred as ‘limited partners’ or ‘special partners.’ There is no
provision for the formation of limited partnership in India.

Such a partnership can be found in U.K., U.S.A. and some of the European countries.
There must be at least one partner with unlimited liability in case of a limited of the business.
He cannot act as an agent of the firm or of the other partners. However, he can assign his
interest in the firm to another person with the consent of the partners with unlimited liability.

Ideal partnership requisites:

In order to be successful in partnership, must possess the following requisites:

(i) Good Faith : The partners should create mutual trust and confidence amongst themselves
through honesty of purpose and fair dealings. To achieve this, the partners must be select
carefully and the number of partners should, as far as possible, be kept small. Three to five
partners are considered to be ideal.

(ii) Common Approach : In order to achieve smooth and proper functioning of partnership, it
is important to ensure that the persons who are chosen as partner must have common approach
to the problems of business. For instance, one partner with an extremely legalistic and
technical out look may find it difficult to deal with another partner who is liberal in his
approach. Similarly, a partner with highly venturesome approach cannot deal with another
extremely cautious and safety-prone partner.

(iii) Written Agreement : To avoid the possibility of misunderstanding and disputes between
the partners, it is advisable that the mutual rights and obligations of the partners be
incorporated into a partnership deed. The deed should also include details about capital,
sharing of profits, drawing rights, payment of interest on capital to partners, payment of
commission or salary, if any to active partners, and so on.

(iv) Registration : Immediately after formation of partnership it should be got registered with
the Registrar of firms. An unregistered firm suffers form certain disabilities, in as much as it
cannot enforce legal remedies against outsiders. A firm can be got registered any time before
filling a suit or enforce its rights against third parities in case it is not registered soon after its
formations.

(v) Adequate Capital : A partnership firm should be started only if the partners are confident
that they will be able to arrange adequate fund for both long-term and short term. As far as
possible, long-term funds must be contributed by the partners. Short-term funds may be
borrowed from banks and other sources.

(vi) Skills and Talents : Every partner is supposed to contribute either in term of capital or in
terms of business ability and skill or in terms of widespread resourcefulness and contacts.
Every partner must contribute in one form or the other. A balanced partnership firm must have
partners who contribute capital and talents.

(vii) Stability : The partners strive to impart long life or continuity to the firm. This will be
possible only if the firm is earning profits and reinvesting a part of profits into the business.
Good faith among the partners is also necessary for the stability of the firm.