What Is Active Partner?
An active partner is an invested person who is involved in the daily operations of the partnership. An active partner helps run the business to enhance his or her returns and is therefore considered a material participant. This person typically shares more risk and return versus a limited or silent partner.
Many firms are built around having active partners fill key management roles.
Understanding Active Partners
Because they are actively involved, an active partner is still exposed to unlimited liability as opposed to a silent partner whose liability is only their initial investment. In this arrangement, even innocent active partners can be held responsible if another partner commits illegal actions that involve the firm.
An active partner may be expected to fulfill specific duties in the course of the daily operations. For example, an active partner may have an executive or directorial role at the company and their performance can have a direct effect on the business. At certain media companies, an active partner might also serve as the director of advertising or taken on the duties of a publisher. They will use their skills and resources for the benefit and growth of the media outlet while also reaping the monetary benefits of owning a significant interest in the company.
Key Takeaways
- An active partner is an invested person who is involved in the daily operations of the partnership.
- An active partner is comparable to a member of a board of directors who also serves in a day-to-day position at a company.
Special Considerations
An active partner is comparable to a member of a board of directors who also serves in a day-to-day position at a company. This can create complexities in the management and decision making of the operation. If that partner takes on an active role in the company, the choices the founder makes might be questioned by the partner even if their position within the company is subordinate to the founder’s position in the hierarchy. A founder, for instance, may seek a partner to help finance the launch or growth of their business.
Furthermore, if the active partner does not properly fulfill the duties they have taken on within the company, punitive action to address their behavior may require additional steps. For instance, if an active partner fails to complete projects on time or otherwise is derelict, terminating their employment might not be possible without also buying out their stake in the company.
In addition, the profits and losses normally are shared equitably, but partners also can specify while completing the partnership-forming paperwork to only share in part of the profits and losses.
Advantages of Active Partners
There are firms that are built around having active partners fill management roles, which can require the corporate structure to factor in how this will affect the advancement of subordinate employees. If the upper management is entirely composed of active partners, it may preclude the possibility of staff members rising to higher positions.
Furthermore, the actions of active partners may have a more profound influence on the direction and prosperity of the business than a non-partner executive. If an active partner is implicated in malfeasance of any sort, whether through the company or outside of it, their actions may reflect negatively on the entire organization.
