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: How does a board of directors f...27 Views
Finance a la Shmoop! How does a board of directors function?
All right, well structurally, the Board of Directors has really one function, after
it is elected by a vote, of the common shareholders, of the company. The board of
recruits, then hires the CEO and that's not necessarily easy. Because, most
of the good CEOs, you actually want, are already ensconced in high-paying jobs, [man being offered money]
from which they have to be bought away. Picking the right CEO, is the big
roulette wheel bet, the board makes. Is the CEO good, or bad, or ugly and yeah the
CEO can be all three. After being hired the CEO then hires everyone else, more or
less. In a public company, the board divides into committees, to advise and
oversee many of the little processes. There's audit committee people and
nomination and government committee people and Compensation Committee people.
In large companies there are also, often subcommittees, that focus on narrow
things, like technology, or politics and lobbying and, or the environment. You know, if [oil drill with man and duck]
you work for a big polluter. Well another big element of board value-add, revolves
around, strategy. Are we the high cost, high value company, or are we the low cost,
Walmart desk provider? That is, are we Pirates of the Caribbean, or are we La La
Land? What other strategic issues are we fighting? How do we get into China and [world map]
Russia and get out of Somalia? So yeah, that's strategy. How does the
board cover its primary obligations, in providing a fiduciary duty, to the
shareholders, who elected them? Is the board governing fairly and equitably?
Yeah, how do they do that? Well they just basically pay attention, right? Are
company policies racist, or gender biased, or ageist?
Which is illegal everywhere, except Silicon Valley in Hollywood. Are all the [director and actress]
right controls inspected, like audit, hiring, firing, policies and our
companies casual Fridays, have they gotten to just to casual? Is that a board item?
Yah, alright, next meeting. So yeah, that's the gist, hire the CEO, form
committees and of course they're also in charge of bagel Thursdays. [man in panda suit, bagels falling from sky]
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