PM132100 - Types of partner

General partner

An ordinary member of a general partnership within the meaning of the Partnership Act 1890 or a limited partnership regulated by the Limited Partnership Act 1907, who bears joint liability without limit for debts of the partnership.

Limited partner

A limited member of a limited partnership whose rights and liabilities to creditors are restricted - see PM131310.

Salaried partner

Either

• an employee, not a partner at all, who is given the title for prestige and who may be remunerated in part by reference to the firm’s profits. The employee’s name may even appear on the firm’s notepaper. But, if it does, the employee bears liability only to those who have advanced credit to the firm in the belief that they were a partner (S12 Partnership Act 1890), or
• a partner who is entitled to a first share of profits, and who is in all other respects an ordinary partner

You should determine the true status of the person concerned by a detailed examination of the facts. In deciding which side of the line a person falls, it is important to consider whether or not they are entitled to participate as principal in the general management and conduct of the business. That is not to say that the day to day management of the business might not be delegated to others. This is often the case, particularly in relation to partnerships with large numbers of partners. But it is inherent in the contract of partnership that a true partner (as opposed to an employee) is permitted, indeed has the right, to participate in the general management and administration of the firm. If you require further guidance on this issue please contact CTISA (Technical).

Sleeping partner

Usually a partner who plays no active part in the business; sometimes a partner who is not disclosed as such to the outside world.

Indirect Partner

A partnership itself can be a partner in another partnership if it has its own legal identity (Limited Liability Partnerships and Scottish Partnerships). Profits may be allocated from the first partnership to the second and so on until the profits are allocated to a partner who is chargeable to tax. A partner in a partnership which is itself a partner in another partnership (the underlying partnership) is an ‘indirect partner’.

A person is an indirect partner in a partnership if the person is a partner in

(a) a partnership which is a partner in the underlying partnership, or

(b) any partnership which is an indirect partner in the underlying partnership.

For example partnership A allocates profits to partnership B, and partnership B then allocates profits to Person C.

Partnership B is a partner in partnership A. Person C is a partner in partnership B. Person C is therefore also an indirect partner in partnership A.