A partner who gives his name to a partnership firm is called a nominal partner. He is also known as a sleeping partner or an ostensible partner.
Why Firms Keeps A Partner Who Gives His Name to Partnership Firm?
Nominal partners often lend their name and goodwill to a firm. This can be useful for a number of reasons in a partnership, such as:
- To attract customers or investors
- To gain access to credit or other resources
- To comply with regulatory requirements
- To create a perception of stability and experience
It is important to note that nominal partners are still liable for the debts of the firm, even though they do not contribute any capital or take any active part in its management. This is because they have allowed their name to be used by the firm and have thereby held themselves out as partners.
Characteristics of Nominal Partner
As nominal partner is a partner who gives his name to a partnership firm, it has the following characteristics:
- Does not contribute any capital to the firm
- Does not take an active part in the management
- Does not share profits and losses of the firm
- Is liable to third parties for the debts of the firm
A nominal partner’s role as a firm partner is only to lend their name and reputation to benefit the company. The governing law in this respect in India is the Indian Partnership Act.
Examples of Nominal Partners
Here are some examples of nominal partners:
- A retired partner who has allowed his name to remain on the firm’s letterhead
- A celebrity who has endorsed a product or service and has allowed his name to be used in the firm’s marketing materials
- A relative of a partner who has allowed his name to be used in the firm’s name
It is important to carefully consider the pros and cons of having a a partner who gives his name to a partnership firm before entering into such an arrangement.
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