Doctrine of Holding out, creating liability of a non-partner: Sec. 28
- In certain cases, a person who is not a partner, may be deemed to be a partner or held out to be a partner for the purpose of his liability towards third party.
- The basis of liability is the application of the law of estoppel because of which he is held out to be a partner or is deemed to be a partner by “holding out”
- Law of Estoppel –if a person, by his representation, induces another to do some act which he would not have done otherwise, then the person making the representation is not allowed to deny what asserted earlier.
- The Doctrine of Holding out is a branch of the Law of Estoppel.
- Therefore, if a person who is not a partner, by his representation, created an impression in the mind of the third party that he is a partner, on the basis of which the third party gives credit to the firm, the person making such representation will be held out to be a partner.
- For the application of the doctrine of holding out, following essentials are needed:
1. Representation or knowingly permitted the representation to be made
2. Acting on the faith of representation and giving credit.
Position of Minor in a Partnership firm-
S.30 (1) –A person who is a minor according to the law to which he is subject may not be a partner in a firm, but with the consent of all the partners for the time being, he may be admitted to the benefits of partnership.
- A partnership between the competent parties to the contract must exist for a minor to be admitted to the benefits of the partnership.
- According to S.30(5), at any time within six months of his attaining majority or of obtaining knowledge that he had been admitted to the benefits of partnership, whichever date is later, he can elect to become or not to become a partner.
- If he remains silent and fails to give such a notice, it is presumed that he wants to be a partner and on the expiry of the said six months, he shall become a partner in the firm.
If Minor Accepts the Partnership then-
- His rights and liabilities continue to be same up to the date on which he becomes a partner.
- His share in the property and profits of the firm shall be the same to which he was entitled as a minor.
- He becomes personally liable to all the creditors for the acts of the firm, retrospectively from the date of his admission to the benefits of partnership.
- When a minor elects not to become a partner, his rights and liabilities continue to be the same up to the date of his giving public notice.
- His liability up to his share in the firm, continues only till the date he gives a public notice.
If after attaining majority, he represents or knowingly permits himself to be represented as a partner in the firm, his liability on the ground of holding out can still be there.