Partner by Estoppel and Holding Out

1. Partner
by
Estoppel,
Holding
out

3. Partner by Estoppel : He is a person who by his
words (spoken or written) or conduct represents himself
as a partner. Such a partner becomes liable to those who
advance money to the firm under the impression that he
is a partner in the firm.
Suppose Mr. X, is not a partner but he tells Mr.Y that he is
a partner in a firm called ABC Enterprises. Under this
impression, Mr.Y sells goods worth Rs. 10,000 to the firm.
Later on the firm is unable to pay the amount to Mr. Y. In
this case, Mr.Y can recover the amount from Mr.X. Here,
Mr.X is a partner by estoppel.

4. (b) Partner by Holding Out : When a person is declared
as a partner but he does not deny this fact even after becoming
aware of it, he becomes liable to third parties who lend money
or credit to the firm on the basis of such a declaration. Such a
partner is called as Partner by Holding out.
Suppose, Mr.X tells Mr.Y in the presence of Mr.Z that Mr.Z is a
partner in his partnership firm. Mr. Z does not deny it. Later on
Mr.Y gives a loan to the firm (where Mr.X is a partner) on the
basis of the belief that Mr.Z is a partner in the firm. If the firm
fails to repay the loan to Mr.Y then in such a case Mr.Z becomes
liable to pay the loan amount to Mr.Y. Here, Mr.Z is a partner by
holding out.

5. (v) Partner by estoppel: A person is considered a
partner by estoppel if, through his/her own initiative, conduct
or behavior, he/she gives an impression to others that he/she
is a partner of the firm. Such partners are held liable for the
debts of the firm because in the eyes of the third party they
are considered partners, even though they do not contribute
capital or take part in its management.
Suppose Rani is a friend of Seema who is a partner in a
software firm — Simplex Solutions. On Seema’s request, Rani
accompanies her to a business meeting with Mohan
Software's and actively participates in the negotiation process
for a business deal and gives the impression that she is also a
partner in Simplex Solutions. If credit is extended to Simplex
Solutions on the basis of these negotiations, Rani would also
be liable for repayment of such debt, as if she is a partner of
the firm.

6. (vi) Partner by holding out: A partner by
‘holding out’ is a person who though is not a partner
in a firm but knowingly allows himself/herself to be
represented as a partner in a firm. Such a person
becomes liable to outside creditors for repayment of
any debts which have been extended to the firm on
the basis of such representation. In case he is not
really a partner and wants to save himself from such
a liability, he should immediately issue a denial,
clarifying his position that he is not a partner in the
firm. If he does not do so, he will be responsible to
the third party for any such debts.

7. 1. Partnership is based on legal contract between two persons who agree to share the
profits or losses of a business carried on by them.
2. As such a minor is incompetent to enter into a valid contract with others, he cannot
become a partner in any firm.
3. However, a minor can be admitted to the benefits of a partnership firm with the
mutual consent of all other partners.
4. In such cases, his liability will be limited to the extent of the capital contributed by
him and in the firm.
5. He will not be eligible to take an active part in the management of the firm.
6. Thus, a minor can share only the profits and can not be asked to bear the losses.
However, he can if he wishes, inspect the accounts of the firm.
7. The status of a minor changes when he attains majority.
8. In fact, on attaining majority, the minor has to decide whether he would like to
become a partner in the firm.
9. He has to give a public notice of his decision within six months of attaining majority.
10. If he fails to do so, within the stipulated time, he will be treated as a full-fledged
partner and will become liable to the debts of the firm to an unlimited extent, in the
same way as other active partners are.
Minor as a Partner

8. Type Capital
contribution
Management Share in profits/
losses
Liability
Active
partner
Contributes
capital
Participates in
management
Shares profits/
losses
Unlimited
liability
Sleeping or
dormant
partner
Contributes
capital
Does not
participate in
management
Shares profits/
losses
Unlimited
liability
Secret
partner
Contributes
capital
Participates in
management,
but secretly
Shares profits/
losses
Unlimited
liability
Nominal
partner
Does not
contribute capital
Does not
participate in
management
Generally does not
share profits/
losses
Unlimited liability
Partner by
estoppel
Does not
contribute
capital
Does not
participate in
management
Does not share
profits/ losses
Unlimited
liability
Partner by
holding out
Does not
contribute capital
Does not
participate in
management
Does not share
profits/ losses
Unlimited liability

9. 1.A person who is not actually a partner of a firm but
knowingly allows himself/herself to be represented as a
partner of the firm is known as partner by holding out.
2.Such a partner can be held liable for the repayment of
debt extended to the firm due to such representation. In
order to avoid this liability, such a person should
immediately clarify his position to the third party, stating
the fact that he/she is not a partner. Failure in clarifying
the same would make him liable to the third party for
repayment of any debts taken by the partnership firm.
3.Such a partner does not contribute any capital.
4.Such a partner does not take part in the management
and its decisions.
Partner by Holding Out