Partner by estoppel and Holding out ppt

Partner by Estoppel and Holding Out

1. Partner
by
Estoppel,
Holding
out

3. PartnerbyEstoppel:Heisapersonwhobyhis
words(spokenorwritten)orconductrepresentshimself
asapartner.Suchapartnerbecomesliabletothosewho
advancemoneytothefirmundertheimpressionthathe
isapartnerinthefirm.
SupposeMr.X,isnotapartnerbuthetellsMr.Ythatheis
apartnerinafirmcalledABCEnterprises.Underthis
impression,Mr.YsellsgoodsworthRs.10,000tothefirm.
LateronthefirmisunabletopaytheamounttoMr.Y.In
thiscase,Mr.YcanrecovertheamountfromMr.X.Here,
Mr.Xisapartnerbyestoppel.

4. (b)PartnerbyHoldingOut:Whenapersonisdeclared
asapartnerbuthedoesnotdenythisfactevenafterbecoming
awareofit,hebecomesliabletothirdpartieswholendmoney
orcredittothefirmonthebasisofsuchadeclaration.Sucha
partneriscalledasPartnerbyHoldingout.
Suppose,Mr.XtellsMr.YinthepresenceofMr.ZthatMr.Zisa
partnerinhispartnershipfirm.Mr.Zdoesnotdenyit.Lateron
Mr.Ygivesaloantothefirm(whereMr.Xisapartner)onthe
basisofthebeliefthatMr.Zisapartnerinthefirm.Ifthefirm
failstorepaytheloantoMr.YtheninsuchacaseMr.Zbecomes
liabletopaytheloanamounttoMr.Y.Here,Mr.Zisapartnerby
holdingout.

5. (v)Partnerbyestoppel:Apersonisconsidereda
partnerbyestoppelif,throughhis/herowninitiative,conduct
orbehavior,he/shegivesanimpressiontoothersthathe/she
isapartnerofthefirm.Suchpartnersareheldliableforthe
debtsofthefirmbecauseintheeyesofthethirdpartythey
areconsideredpartners,eventhoughtheydonotcontribute
capitalortakepartinitsmanagement.
SupposeRaniisafriendofSeemawhoisapartnerina
softwarefirm—SimplexSolutions.OnSeema’srequest,Rani
accompanieshertoabusinessmeetingwithMohan
Software'sandactivelyparticipatesinthenegotiationprocess
forabusinessdealandgivestheimpressionthatsheisalsoa
partnerinSimplexSolutions.IfcreditisextendedtoSimplex
Solutionsonthebasisofthesenegotiations,Raniwouldalso
beliableforrepaymentofsuchdebt,asifsheisapartnerof
thefirm.

6. (vi)Partnerbyholdingout:Apartnerby
‘holdingout’isapersonwhothoughisnotapartner
inafirmbutknowinglyallowshimself/herselftobe
representedasapartnerinafirm.Suchaperson
becomesliabletooutsidecreditorsforrepaymentof
anydebtswhichhavebeenextendedtothefirmon
thebasisofsuchrepresentation.Incaseheisnot
reallyapartnerandwantstosavehimselffromsuch
aliability,heshouldimmediatelyissueadenial,
clarifyinghispositionthatheisnotapartnerinthe
firm.Ifhedoesnotdoso,hewillberesponsibleto
thethirdpartyforanysuchdebts.

7. 1.Partnershipisbasedonlegalcontractbetweentwopersonswhoagreetosharethe
profitsorlossesofabusinesscarriedonbythem.
2.Assuchaminorisincompetenttoenterintoavalidcontractwithothers,hecannot
becomeapartnerinanyfirm.
3.However,aminorcanbeadmittedtothebenefitsofapartnershipfirmwiththe
mutualconsentofallotherpartners.
4.Insuchcases,hisliabilitywillbelimitedtotheextentofthecapitalcontributedby
himandinthefirm.
5.Hewillnotbeeligibletotakeanactivepartinthemanagementofthefirm.
6.Thus,aminorcanshareonlytheprofitsandcannotbeaskedtobearthelosses.
However,hecanifhewishes,inspecttheaccountsofthefirm.
7.Thestatusofaminorchangeswhenheattainsmajority.
8.Infact,onattainingmajority,theminorhastodecidewhetherhewouldliketo
becomeapartnerinthefirm.
9.Hehastogiveapublicnoticeofhisdecisionwithinsixmonthsofattainingmajority.
10.Ifhefailstodoso,withinthestipulatedtime,hewillbetreatedasafull-fledged
partnerandwillbecomeliabletothedebtsofthefirmtoanunlimitedextent,inthe
samewayasotheractivepartnersare.
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.Apersonwhoisnotactuallyapartnerofafirmbut
knowinglyallowshimself/herselftoberepresentedasa
partnerofthefirmisknownaspartnerbyholdingout.
2.Suchapartnercanbeheldliablefortherepaymentof
debtextendedtothefirmduetosuchrepresentation.In
ordertoavoidthisliability,suchapersonshould
immediatelyclarifyhispositiontothethirdparty,stating
thefactthathe/sheisnotapartner.Failureinclarifying
thesamewouldmakehimliabletothethirdpartyfor
repaymentofanydebtstakenbythepartnershipfirm.
3.Suchapartnerdoesnotcontributeanycapital.
4.Suchapartnerdoesnottakepartinthemanagement
anditsdecisions.
Partner by Holding Out