Dormant Partner is one who is a participant in the profits of a firm, but his name is concealed, his interest is not apparent. The partner ‘who does “not take part in the management of the business but simply contributes capital to the firm is known as a dormant or sleeping partner. A dormant business partner is a contributor or investor who is not active in managing a firm and may not be known to the outsiders. This is a partner who takes no share in the active business of a company or partnership but is entitled to a share of the profits, and subject to a share in losses. He will continue to share the profits and losses of the firm and even bring in his share of capital like any other partner. He is however bound by the action of all the other partners.
A partnership is when two or more people work together and share the profits from the business or profession. Dormant Partner or Sleeping Partner is one who contributes only capital to the business but does not take part in its management. He is also called a dormant partner or financing partner. This is a partner that does not participate in the daily functioning of the partnership firm, i.e. he does not take an active part in the daily activities of the firm. If such a dormant partner retires he need not give public notice of the same. As such, he will not be liable to third parties for the acts done after his retirement.
He/She shares profits and losses with other partners but (if he or she is not a signatory to the loan agreements) generally may withdraw from the firm without notice to the lenders. S/He only contributes capital and does not take active part in the day to day management of the firm. S/He shares the profits/losses of the firm. His/Her liability is unlimited. Unknown partners are properly secret partners: but in common parlance, they are usually designated by the appellation of dormant partners. Such a partner only contributes to the share capital of the firm, is bound by the activities of other partners, and shares the profits and losses of the business.