Agriculture Reference
In-Depth Information
formed, the members are all on good terms and cannot imagine feeling any other way about
each other, but situations change and people change. Not only will a written contract of
partnership provide solutions if problems occur, but it will also serve as a ready reference as
important decisions are made in the partnership.
Types of partners
In forming a partnership, the business entity may include a variety of different partners.
Some of the more common types of partners are outlined below with a set of characteristics
unique to that particular partner:
A
general partner
is one who is active in the management of the partnership, typically has
an investment in the business, and is subject to unlimited liability. If nothing is in writ-
ing, all partners are assumed to be general partners.
A
limited partner
has taken steps to limit their liability in the partnership. This agreement
must be in writing. Also, limited partners may not take an active role in managing the
partnership.
A
senior partner
is typically an individual who helped form the partnership or one who has
seniority in the business. Senior partners typically run the business, have an investment
in the fi rm, and tend to receive the major portion of partnership profi ts.
A
junior partner
is typically younger and has not been in the business as long as a senior
partner. Junior partners tend to receive a smaller portion of the business profi ts. Junior
partners rarely take an active role in managing the business affairs of the partnership.
A
secret partner
is an individual who desires to take an active role in managing the partner-
ship but is not known to be a partner by the general public. Thus, secret partners do have
unlimited liability. An individual may desire to become a secret partner due to involve-
ment in other business ventures. If the partnership fails, the general public will not know
of this individual's involvement, thus other businesses controlled by this person would
be unaffected by negative public opinion.
A
silent partner
is known by the public and not active in managing the partnership. An
individual may seek to be a silent partner to add name recognition to a fi rm and to con-
tinue having the advantage of limiting liability in the enterprise.
A
dormant partner
is not active in managing the partnership and is not known by the gen-
eral public. Thus, dormant partners retain limited liability. The reason fi rms may seek
dormant partners is to obtain additional investment capital for the business.
A
nominal partner
means “in name only.” Nominal partners are not active in the business
and have no investment. If Jake Smith owned a horse ranch and named it Jake Smith and
Sons, assuming they have no investment in the business, Jake's sons would be nominal
partners.
The corporation
A
corporation
is a special legal entity endowed by law with the powers, rights, liabilities,
and duties of a person (in fact a corporation is sometimes referred to as an “artifi cial” person).
The corporate form of business organization typically facilitates the accumulation of greater
amounts of capital when compared to proprietorships and partnerships. Without the corpo-
rate form of organization it is impossible to imagine the creation of today's large business
entities, which employ hundreds of thousands of people and are worth billions of dollars.
