Question:
Clare, Dan and Eve formed a partnership 10 years ago, although Clare was a sleeping partner and never
had anything to do with running the business. Last year Dan retired from the partnership. Eve has
subsequently entered into two large contracts. The first one was with a longstanding customer Greg,
who had dealt with the partnership for some five years. The second contract was with a new customer
Hugh. Both believed that Dan was still a partner in the business. Both contracts have gone badly wrong
leaving the partnership owing $50,000 to both Greg and Hugh. Unfortunately the business assets will
only cover the first $50,000 of the debt.
Required: Explain the potential liabilities of Clare, Dan, and Eve for the partnership debts.
Suggested Answer:
Clare
The first thing to establish is the status of Clare. Although the question states that she is a sleeping
partner, it has to be stated that the law does not recognize any such category. A dormant or sleeping
partner is a person who merely invests money in a partnership enterprise but, apart from receiving a
return on capital invested, takes no active part in the day-to-day running of the business.
Although a limited partner in a limited partnership formed under the RUPA may be seen as a dormant
partner, the term is used more generally to refer to people who simply put money into partnership
