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Partnership firm is not a separate legal entity like Public company, Private Company etc. Partnership Firm is registered as per the provisions of the Partnership act, 1932. A formal agreement is executed between / among all the partners of the company.

All the members are collectively called as partners and individually called as partner. The business activity must be lawful and the motive should be on of profit.


As we know that there should be a minimum of two members. However, the maximum number will vary according to a few conditions. The Partnership Act itself is silent on this issue, but the Companies Act, 2013 provides clarity.

For a banking business, the number of partners must not exceed ten. For a business of any other nature, the maximum number is twenty. If the number of partners increases it will become an illegal entity or association.


In this type of organisation, the business must be carried out by all the partners together. Or alternatively, it can be carried out by any of the partners (one or several) acting for all of them or on behalf of all of them. So, this means every partner is an agent as well as the principal of the partnership.

He represents the other partners in some cases so he is their agent. But in other circumstances, he is bound by the actions of any of the other partners asking him the principal as well.


Not all partners of a firm have the same responsibilities and functions. There can be various types of partners in a partnership. Let us study the types of partners and their rights and duties.

  1. Active Partner: – As the name suggests he takes active participation in the business of the firm. He contributes to the capital, has a share in the profit and also participates in the daily activities of the firm. His liability in the firm will be unlimited. And he often will act as an agent for the other partners.


  1. Dormant Partner: – Also known as a sleeping partner, he will not participate in the daily functioning of the business. But he will still have to make his share of contribution to the capital. In return, he will have a share in the profits. His liability will also be unlimited.


  1. Secret Partner: – Here the partner’s association with the firm is not public knowledge. He will not represent the firm to outside agents or parties. Other than this his participation with respect to capital, profits, management and liability will be the same as all the other partners.


  1. Nominal Partner: – This partner is only a partner in name. He allows the firm to use the name of his firm, and the attached goodwill. But he in no way contributes to the capital and hence has no share in the profits. He does not involve himself in the firm’s business. But his liability too will be unlimited.


  1. Partner by Estoppel: – If a person makes it out to be, through their conduct or behavior, that they are partners in a firm and he does not correct them, then he becomes a partner by estoppel. However, this partner too will have unlimited liability.



Partnerships have many advantages as a form of business, such as follows,

  1. Formation of partnerships firm is an easy task. You only require a contract of partnership. Registration is not compulsory in most cases.
  2. Since many partners are involved in a business, they all bring their own expertise and management styles. This helps in better management of the business.
  3. All partners also contribute to the capital of the firm so it has more funds to work with

The risk of the business is also shared among all partners