Types of Partnership

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on November 17, 2021

This article summarizes the types of partnerships that exist.

Active Partner: An active partner is also referred to as a working partner. An active partner performs a direct role in the management and running of the business. They also invest in the partnership business.

Sleeping Partner: A sleeping partner is a partner who:

  • Invests in the business
  • Shares the gains and losses of the business
  • Does not participate in the conduct and management of the business
  • Is known to the public as a partner
  • Is liable to the firm’s creditors

Silent Partner: A silent partner is a partner who:

  • Is known to the public as a partner
  • Does not participate in the management and conduct of the business
  • Is liable to the firm’s creditors as other partners

Secret Partner: A secret partner is a partner who:

  • Takes an active part in the conduct and management of the business
  • Is not known to the public as a partner
  • Is liable to creditors like other partners
  • Need not serve notice to creditors regarding their retirement from the business

Nominal Partner: A nominal partner is a partner who:

  • Does not contribute toward capital
  • Does not share the gains of the business
  • Is publicly known as a partner (in fact, a nominal partner has allowed other partners to use their name as partner only to oblige)

Minor Partner: A minor partner is a partner who:

  • Cannot themselves be a partner because they cannot contract
  • Can share in the gains of the business with the consent of all partners
  • Has another person to act as their guardian
  • Does not bear the losses of the firm out of their private property
True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True contributes to his own finance dictionary, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

1 thought on “Types of Partnership”

  1. What is the criteria of profit distribution between active partner and silent/sleeping partner?
    E.g., active partner is the one who is actively involved in the conduct of business but has less investment amount. He seeks sleeping/silent partner for investment but these sleeping/silent partners have more investment than the active partner. What will be the ratio of profit distribution among the active and sleeping/silent partners?
    To more clarify lets take an actual example. There is a project “ABC”, which is granted to a firm on business relations of an active partner. The contract amount is say $15,000. Active partner invests $3,000. Remaining $12,000 dollars is invested by sleeping/silent partners. If the profit is $3,000, then how is the profit ($3,000) distributed among the active partner and sleeping/silent partner? What percentage of the profit is kept by the active partner before profit distribution? because he is the main person who is bringing business to the firm.
    NOTE: after keeping that amount of percentage, remaining amount will be distributed among all the partners as per investment percentage.
    Please guide regarding this scenario.
    Best Regards.

    Reply

Leave a Comment