DEFINITION of '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.

BREAKING DOWN 'Active Partner'

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.

How an Active Partner Functions at a Company

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.

While an active partner is comparable to a member of a board of directors who also serves in day-to-day position at a company. This can create complexities in the management and decision making of the operation. A founder, for instance, may seek a partner to help finance the launch or growth of their business. 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. 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.

Benefits 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. Should an active partner be implicated in malfeasance of any sort, whether through the company or outside of it, their actions may reflect negatively on the entire organization.

  1. Silent Partner

    An individual whose involvement in a partnership is limited to ...
  2. Carried Interest

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  3. Joint Liability

    Joint liability denotes the obligation of two or more partners ...
  4. Limited Partnership - LP

    A limited partnership exists when two or more partners jointly ...
  5. Return Of Capital

    Return on capital is that return from an investment that is not ...
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    A real estate limited partnership is an entity that invests in ...
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