The Nominal Partner is an individual who is neither a part-owner of the partnership nor an active participant in the firm’s affairs. Often this is a well-known person who lends a famous name to the company and it pays a fee to her/him for this service rendered by their face value.
A person who has an interest in the success of a partnership firm but legally is not a partner because he or she neither owns a part of the firm nor actively participates in its affairs is also a nominal partner. S/he is also known as an ostensible partner or limited partner.
An individual who holds herself/himself out as a partner or allows a partner to hold her/him out as a co-partner but actually, s/he is not a partner.
The responsibilities of such partners should be defined clearly in an agreement beforehand so that there are fewer headaches going forward. If s/he misleads or deceives outsiders into thinking that s/he is a genuine partner, the true owners (and possibly, the nominal partner) could be subjected to liabilities for debts and other commitments that the nominal partners have made.
Use of the term in Sentence
- Jim is a nominal partner in the business, so he has no active participation in its activities.
- Choosing a nominal partner solely based on their popularity to gain exposure for a newly founded law firm can prove to be a fine strategy.
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