A dormant partner is an individual who shares in the profits of a business but does not actively participate in its management or operations. Their involvement is typically concealed, meaning their name is not publicly associated with the firm. This arrangement allows the dormant partner to benefit financially while remaining out of the spotlight.
The term "dormant partner" is commonly used in business law, particularly in partnerships. It is relevant in contexts such as:
Individuals considering becoming a dormant partner should be aware of the legal implications and may benefit from using legal templates available through US Legal Forms to draft necessary agreements.
Here are a couple of examples of abatement:
Example 1: A business owner wants to expand their company but lacks the capital. They bring in a dormant partner who invests money but does not take part in daily operations. The partner receives a percentage of the profits without being involved in decision-making.
Example 2: A group of friends starts a restaurant. One friend, who has a high-paying job, invests in the restaurant as a dormant partner, allowing the others to manage it while still sharing in the profits. (hypothetical example)
Examples of state differences (not exhaustive):
| State | Key Differences |
|---|---|
| California | Specific regulations regarding profit-sharing and liability for dormant partners. |
| New York | Different tax implications for dormant partners compared to active partners. |
This is not a complete list. State laws vary and users should consult local rules for specific guidance.
| Term | Definition | Key Differences |
|---|---|---|
| Dormant Partner | A partner who shares in profits but does not participate in management. | Not publicly identified; limited involvement. |
| Active Partner | A partner who is involved in the day-to-day operations of the business. | Actively manages and makes decisions for the firm. |
| Silent Partner | A partner who invests in the business but does not participate in management. | Similar to dormant but may have a more defined role in financial decisions. |
If you are considering becoming a dormant partner, it is important to:
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| Attribute | Details |
|---|---|
| Role | Passive participant in the business |
| Profit Sharing | Entitled to a share of profits |
| Liability | May have limited liability depending on state laws |
The main benefit is receiving a share of the profits without being involved in daily operations.