Explain the meaning of “partner by holding out”.

1.	Explain the meaning of “partner by holding out”.
Answer» (i) A partner by holding out means a person who is not a member of firm but allows himself/herself to be represented as a partner. Such person is responsible to person who has given loan to firm on his representation because loan has been given by assuming that he/she is member. (ii) Such a partner can be held liable for the repayment of debt extended to the firm due to such representation. In order to avoid this liability, such a person should immediately clarify his position to the third party, stating the fact that he/she is not a partner. Failure in clarifying the same would make him liable to the third party for repayment of any debts taken by the partnership firm. (iii) Such a partner does not contribute any capital. (iv) Such a partner does not take part in the management and its decisions.

Answer»

(i) A partner by holding out means a person who is not a member of firm but allows himself/herself to be represented as a partner. Such person is responsible to person who has given loan to firm on his representation because loan has been given by assuming that he/she is member.

(ii) Such a partner can be held liable for the repayment of debt extended to the firm due to such representation. In order to avoid this liability, such a person should immediately clarify his position to the third party, stating the fact that he/she is not a partner. Failure in clarifying the same would make him liable to the third party for repayment of any debts taken by the partnership firm.

(iii) Such a partner does not contribute any capital.

(iv) Such a partner does not take part in the management and its decisions.

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