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CA Foundation · Business Laws · The Indian Partnership Act, 1932

Mehul, Nisha and Omkar run a textile firm in Surat. Mehul invested capital and takes part in managing the business. Nisha invested capital but leaves all management to Mehul and Omkar. Both Mehul and Nisha share in profits and are known to the public as partners. How is Nisha best described?

Nisha is a sleeping partner. She contributes capital and shares profits but does not participate in management. Being a real partner, she remains liable to third parties for the firm's debts, so she cannot escape liability merely because she stays out of day-to-day management.

  1. ASleeping partner, who is still liable to third parties for the firm's debtsCorrect
  2. BNominal partner, who has no interest in the firm's profits
  3. CPartner by holding out, who has not invested in the firm
  4. DSub-partner, who shares only Mehul's profits

Explanation

A partner who contributes capital and shares profits but does not take part in running the business is a sleeping (dormant) partner. She is still a partner, so she is liable to outsiders for the firm's debts jointly with the others. A nominal partner lends only his name and has no real interest, which is not Nisha's position.

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