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Difficulty: EasyPartnership: Types, Deed, Rights, and Dissolution

Match each type of partner in a business partnership with the statement that correctly describes their management role and liability status.

  • Sleeping (Dormant) PartnerContributes capital and shares in profits, but takes no active part in daily business operations.
  • Active PartnerTakes an active role in daily business operations and has full, unlimited liability for all firm obligations.
  • Nominal PartnerAllows their name to be used by the business without contributing capital or receiving profits, but remains liable to third parties.
  • Limited PartnerHas liability restricted to the amount of capital contributed and is legally barred from taking part in business management.

Answer

Sleeping (Dormant) Partner matches with contributing capital and sharing profits without taking an active part in operations; Active Partner matches with taking an active role in operations with unlimited liability; Nominal Partner matches with allowing their name to be used without contributing capital or receiving profits while remaining liable; Limited Partner matches with having liability restricted to capital contributed without management rights.
Each partner type matches their statutory definition under commercial law: Sleeping Partners invest capital and share profits without managing; Active Partners manage operations with unlimited liability; Nominal Partners lend their name without capital/profit participation; Limited Partners have liability limited to capital contributed without management rights.

Step-by-Step Solution

1
Identify the key characteristics of a Sleeping Partner.
A sleeping partner invests capital and receives profit shares but is inactive in daily management.
Dormant or sleeping partners do not participate in day-to-day administration of the firm.
2
Identify the key characteristics of an Active Partner.
An active partner manages the enterprise directly and has unlimited liability.
Active partners hold full executive authority and bear full personal risk for partnership liabilities.
3
Identify the key characteristics of a Nominal Partner.
A nominal partner permits the firm to use their name, holds no financial stake in profits or capital, but is liable to third parties.
Lending one's name to the public creates legal liability to third parties despite lack of capital investment.
4
Identify the key characteristics of a Limited Partner.
A limited partner's liability is capped at their capital contribution, and they cannot take part in management.
Under partnership laws, limited liability status is contingent upon non-participation in management.

Key Concept

Classification, management rights, and legal liabilities of partners in a partnership business.
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Topics

Partnership: Types, Deed, Rights, and Dissolution

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