Is a sleeping partner liable to the acts of other partners?
A sleeping partner, also known as a silent partner, is a partner who is not actively involved in the management of the business. They provide capital and share in the profits and losses of the business but do not participate in the day-to-day operations. The question is whether a sleeping partner is liable for the acts of other partners.
Overview of partnership liability
Before answering the question, it is important to understand the concept of partnership liability. Partners in a general partnership are jointly and severally liable for the obligations of the partnership. This means that each partner is individually responsible for the full amount of the debt or obligation, even if another partner is also liable. In other words, creditors can go after any partner for the entire amount owed, regardless of each partner's percentage of ownership.
Liability of sleeping partners
As mentioned earlier, sleeping partners are not involved in the day-to-day operations of the business. Therefore, they are generally not personally liable for the debts and obligations of the partnership. However, there are some exceptions to this rule:
- If the sleeping partner participates in the management of the business, they may be held personally liable for the partnership's obligations.
- If the sleeping partner has actual knowledge of a wrongful act committed by another partner and fails to take action to prevent it, they may be held liable for the damages caused by that act.
- If the sleeping partner signs a personal guarantee for a debt or obligation of the partnership, they are personally liable for that debt or obligation.
Conclusion
In general, a sleeping partner is not liable for the acts of other partners. However, there are some situations where a sleeping partner can be held personally liable for the debts and obligations of the partnership. It is important for sleeping partners to understand their rights and responsibilities and to take appropriate action to protect themselves from liability.