Briefly Explain the Following Types of Partnership (i) Dormant Partner (ii) Active Partner (iii) Nominal Partner
By BYJU'S Exam Prep
Updated on: November 9th, 2023
An active partner is actively involved in daily operations; a dormant partner is one who is not actively involved in daily operations, and a nominal partner has no genuine or substantial stake in the partnership. A partnership is when two or more people work together and split the profits from a profession or business.
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Types of Partnership
It is not always true that all partners share equally in the firm’s profits, work, or liabilities. Different partners are classified according to their level of liability or participation, such as dormant or active partners. The types of partners are Active Partners, Dormant Partners, and Nominal Partners. The details have been elaborated on below:
Active Partner
An Ostensible Partner is a partner who is actively involved. As implied by the name, he/she manages and actively participates in the company. On behalf of all the partners, he manages the business. It indicates that he acts as an agent for all the other partners and handles all regular business for the company.
As a result, an active partner should notify the public when he plans to retire. He will no longer be responsible for the other partners’ activities once they retire. He/she won’t be held accountable for actions after retirement, only if he makes a public announcement.
Dormant Partner
A partner who is not involved in how the business operates or is not actively involved in daily operations. He/she is constrained by what the other partners do. Like any other partner, he/she will contribute his fair share of capital and share in the gains and losses. No public notice is required if a dormant partner retires.
Nominal Partner
A partner who has no genuine or substantial stake in the partnership. He is endorsing the joint venture with his name. He will not make any capital contributions to the company and won’t receive any of the profits either. The nominal partners will be liable to third parties and outsiders for the actions taken by the other partners.
Summary:
Briefly Explain the Following Types of Partnership (i) Dormant Partner (ii) Active Partner (iii) Nominal Partner
A person who actively participates in the firm and runs the business is an active partner. A person who does not participate in the firm’s functioning is a dormant partner. A person with no significant or real interest in the partnership is a nominal partner.
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