Types of partnerships

TYPES OF PARTNERS

As we have seen, usually individuals who own a partnership business organization must contribute to the capital used in setting up and running the business; and participate in managing the activities of the business. Partners are also expected to share in the profit and in the losses from the business at a ratio agreed to by all the partners.

However, in some cases partners can play a limited role where they only contribute to the capital. Such partners are said to be inactive or dormant.  In other cases, the partner only allows their names to be used by the firm and make no contribution in the form of capital in such instances we can say that they partner only in name. Thus partners can be classified into various types, depending on the extent to which they participate in the business.

PARTNERSHIP BASED ON HOW ACTIVE A PERSON IS IN THE BUSINESS

Active Partner or Working Partner

These kind of partners take part in the day-to-day administration of the business.

Sleeping or Dormant Partners

Sleeping partners are partners who do not involve themselves in the daily management of the businesses activities. Dormant partners only contribute to the capital used in forming and running the business’ activities. These partners share in the profit as well as the losses from the business. 

PARTNERS CAN ALSO BE CLASSIFIED BASED ON HOW PROFIT IS SHARED.

A partner who simply allows the business to use his/her name is known as a Nominal Partner. Nominal Partners do not share in the profit of the business; as they do not make any contribution beyond the fact the business is using their name as partners in the business. Nominal Partners also do not take part in the management of the business. However, they may become liable to third parties for any action taken by the business. Where a partner contributes to the capital used to form and run the business; share in the profit but is not liable for the losses made by the business, he/she is referred to as a to Partner in Profit. For Partners in Profit; their liabilities are limited only to the amount of resources they invest in the business.

Partnership Based on Liability

Based on the liability which partners must bear, they either be called Limited Partners or General Partners. A partner whose liability is limited only to the amount of money or other resource he/she invests in the business is called a Limited Partner. Oh the other hand when a partner’s liability is unlimited he/she is called a General Partner. It must be noted that every partner who is not a limited partner is treated as a general partner.

Partnership based on the behaviour and conduct exhibited by the partner

A person who behaves in the public in such a way as to give an impression that he/she is a partner of the firm, is called partner by estoppel. Partners by estoppel are not entitled to share in the profit from the business but they are liable by to someone who suffers any loss due to their false presentation. Similarly, if a partner or partnership firm declares that a particular person is a partner of their firm, and such a person does not disclaim it, then he/she is known as ‘Partner by Holding out’. Such partners are not entitled to profits but are fully liable as regards the firm’s debts.