Partner by estoppel and Partner by …

Partner by estoppel is one who by his conduct allow him to be represented as a partner of a firm. If anyone advances money to the firm on the basis of his representation, then he becomes liable to that third party and cannot deny its claim.

Partner by holding out is the one who does not deny when he is declared as a partner of a firm. If anyone advances money to the firm on the basis of his declaration, then he becomes liable to that third party and cannot deny its claim.

Both the partner by estoppel and partner by holding out are nominal partners. They just differ on a point that the partner by estoppel represent himself as a partner while partner by holding out is declared as a partner.

Detailed explanation:

Partner by Estoppel

Partners by Estoppel is a person who represents himself/herself as a partner of a firm through his/her own conduct or behaviour or attitude. Such partners are held liable for any credits or debts obtained by such representation. In short, such partners cannot deny being a partner if he/she represents himself/herself as a partner of the firm.

For example, P and Q are the partners and R is a friend of P. They asked R to allow them to use his name for their business. R agrees on this. Let us assume that P and Q took a loan from a bank against R's name and subsequently P and Q became insolvent. In this case, R would be considered as a partner of the firm and would be held liable for such loan.

Partner by Holding Out

Partner by Holding Out is a person who is not a partner in a firm but intentionally or deliberately allows himself/herself to be represented as a partner of the firm. Such partners are held liable to the outsiders for any credit or debts extended to the firm on the basis of such representation. Such a partner can refused to be a partner of a firm immediately by issuing his/her denial and describing his/her position that he/she is not a partner on such representation. But if he/she remain silent on such representation then he/she would be held liable to the third parties.

Example: Let us suppose an instance, where R is represented as a partner by P an Q in their partnership firm at the time of applying loan from a bank, meanwhile, R (knowingly) remained silent on this statement of P and Q. Now, if P and Q became insolvent and failed to repay the bank loan, then in this case R will be liable to repay the loan, as P and Q applied loan against his name with the consent of R.