According to the Tax Foundation, there are 8% of business in the US based upon partnership. A partnership is a kind of business where a minimum of two people start or a single person adds another owner in existing business for any of the partnership benefit it’s looking for.
One of the most important characteristics is different kinds and a flexible number of partners in such business.
Active Partner (Managing or Working Partner)
A person who takes an active part, in the affairs and management of the business is called an
He is not
The person who receives a share of profit from one of the regular partners is called the Sub-Partner. He is not liable to pay the debt is of the firm. He has no rights and privileges against the firm.
Silent Partner (Silent form managing point of view)
He is that kind of partner who does not participate in the affairs of the business but is known to outsiders as a partner of the firm. He is liable to pay the debts of the firm like
Secret Partner (Secret from
public point of view)
He is active in the running life of the firm but
Sleeping Partner or Dormant Partner
It is Sleeping from both Points of View i.e., public and managing
A person who
- does not conduct the management of the firm personally
- is not known to the outsiders as a partner of the firm, is called sleeping partner. But he invests his amount in the business and is liable to clear the debts of the firm. He is also called dormant partner.
There is no restriction to join the minor in the partnership by law. Although he may become
In this case, he can be admitted to the profits of the firm only but not losses.
He is not personally liable for the obligations of the firm. But minor has the right to inspect and copy the accounts of the firm. Within six months of his attaining maturity, he has to give public notice whether he wants to remain partner or not. After his decision, he will be deemed as a full-fledged partner.
A person who has retired from the running management life of the firm but he does not withdraw his capital from the business is known as quasi-partner.
So his capital is considered as a loan and he receives interest at the rate varying with the profit. Really he is not a partner but he is a Deferred Creditor.
A person who brings a large portion of capital in the business is called a senior partner. He has a prominent position in the firm due to his experience, skill, energy, age and other abilities.
He invests minor portion of capital in the business and so he has small share in the profits. He is junior to an other partner in the firm due to his age, experience and other factors.
Holding Out Partner (Estoppels Partner)
A person who declares by word of mouth as a partner of the firm is called holding out partner. In reality, he is not a regular partner so he is not entitled to receive
An individual who does not bring anything i.e. amount or goods in the firm but has right to receive salary or share in the profit or both is named as salaried partner. He is known to the outside world as a partner and is liable for all the acts of the firm like other partners.
A person who is newly admitted to the firm with the consent of all the parties is called incoming partner. He is not liable for any act of the firm done before he became a partner unless he agrees;
Retired Partner (Outgoing Partner)
A person who goes out of a firm due to certain event or reason is known as retired or out going partner. In this situation the remaining partners continue to carry on the business. Retiring partner is liable for all the obligations and debts incurred before the retirement. But he will also be liable to third parties even for future transaction, if he does not give public notice of his retirement..
Partners in Profit Only
He is an individual who gets a share of the profits only without being liable for the losses. He does not participate in the management of the business. He will be liable to outsiders for all acts of the firm.
A person who has not to pay any obligation more than the share he holds in the firm is called limited partner. He can not take part in the management of the firm. This kind of partner exists in a limited partnership. But this type of organizational structure is rare in our country.
Admission of a New Partner in Existing Partnership
- A new partner can be admitted into the partnership firm at any time with the consent of all existing partners.
- A new partner to be admitted to a firm must not. be insolvent or lunatic.
- New admitted partner is liable for all acts of the firm done after he becomes a partner.
- New incoming partner will not incur any obligation of the firm before he becomes a partner unless otherwise agreed.
- Other terms and conditions will be determined under the terms of the partnership agreement.
Withdrawal or Retirement of any Partner
- Every partner has a right to retire from the partnership firm by giving notice of fourteen days to all partners in case the partnership is at will.
- If a partnership is formed for a definite period of time, a partner may retire or withdraw from the firm before the expiry of that period. But in case of loss borne by other partners due to his retirement, he will be responsible for the loss.
- A partner may withdraw his share with the consent of existing partners.
- An outgoing partner can start competing for business but he cannot use the firm’s name or trademark or other special privileges.
- A retired partner will not be liable for any act of the firm after his retirement. But withdrawing partner will be liable to third parties for all acts of the firm until he serves public notice of his retirement as withdrawal from the firm.
- A withdrawing partner has the right to receive all his benefit i.e., share and interest etc from other partners under the provisions of an agreement.
Reference : https://taxfoundation.org/overview-pass-through-businesses-united-states/