A nominal partner does not have any real or significant interest in the partnership firm. A person who is not a partner but merely lends his name to the firm for the interest of business is known as a nominal partner. This partner does not share any profit and losses in the firm because he does not contribute any capital to the firm. He is a partner in the business who has no actual interest in the trade or its profits. But the nominal partner will be liable to outsiders and third parties for acts done by any other partners.
A nominal partner holds himself/herself out to the world as having an apparent interest in the business. A nominal partner, in the eyes of the general public, is a member of the business concern and thus, under certain circumstances, may obligate the firm members by his acts and becomes liable for the debts of the firm. So, in essence, he is only lending his name to the partnership. He will not make any capital contributions to the firm, and so he will not have a share in the profits either. He does not share the profits/losses of the firm. He represents himself or ‘knowingly allows himself to be represented as a partner of the firm.
This partner will have an interest in the success of a partnership firm but, legally, the person will not be a partner. This is because the person neither owns a part of the firm nor actively participates in its affairs. For example – A partnership is executed between the partner and the celebrity or a business tycoon for the sake of value addition to the firm and also for promoting branding by using the person’s fame and goodwill. However, one must not always assume that all partners participate in the work or profits or even liabilities of the firm equally. The legal part of his liability is debatable but if a person has acted on the pretext of the reputation of a Nominal partner and has suffered a loss resulting from then he can be made legally liable.