Active Partner
Your passive partner just gave you a few hundred grand to open your Singing Lawn Mower store. They're passive because they have nothing to do with tuning the mowers, sharpening their blades, loading in riffs from Adele, The Stones, and The Eagles, and they don't sell to customers. They just gave you the money, left, and went off to play golf all day.
An active partner either gave you money directly, or has sweat equity in some form, and actually helps you run the business. Because they are active, should one of those singing lawn mowers listen to too many angry Kelly Clarkson songs one day and decide to eat feet, the active partner has unlimited liability, as opposed to the passive partner who was just a remote investor.
The definition of active partner is broad, but it can involve as little direct daily touch with the business as simply being on the board of directors, or it can refer to the CEO of the company. So when you think passive, think public shareholder, or non-board member private investor, and when you think active, think: playing mellow songs on the mowers when you're selling them.
Related or Semi-related Video
Finance: What is a partnership?23 Views
finance a la shmoop. what is a partnership? a marriage. joint ownership
of a bar. when two dudes put up half the dough each to share 50/50 in a time [two different people offer money for keys]
machine. well a partnership is just the merging
of two individuals in doing a given business deal or setting up a business
structure. if both are owners then both are liable for you know bad things
should they happen. partnerships carry a lot of financial danger if one partner
goes off the rails and decides to commit fraud in the name of the company or that
evil partner enters into a stupid company bankrupting contract, well then [bad contract sold to unsuspecting victim]
both parties pay for it. the innocent partner pays just as much in the form of
whatever financial damages befall the partnership as the evil one, and
partnership liabilities include personal assets if the partnership is structured
like a general partnership with limited partners having no personal liability so [ liability structures defined]
for all the good that a partnership can have it can get bad and ugly so you got
to enter partnerships carefully. spend lots of dough on lawyers before you set
it up so you don't have to after. [money exchanged for partnership contract ]
Up Next
What are Passive Investing and Passive Investors? Passive investing and passive investors are ones who opt to ride the market out over the long ter...
What is a limited partnership? A limited partnership is one in which at least one party is a general partner who assumes personal liabilities and i...
How does a board of directors function? Public companies, as well as some private corporations and non profit groups, have a board of directors. Us...
What are CEOs, CFOs, and COOs? The “C” level executives in a corporation are the corporate officers responsible for the management decisions an...