Quick Answer
Partnership accounts open in the partnership's name under a partnership agreement that names authorized traders, defines investment authority, and allocates profits and losses among partners. General partners have unlimited liability and manage the partnership, while limited partners have limited liability but cannot participate in management without losing it.
Partnership accounts are opened in the name of the partnership entity and require documentation that identifies who has authority to trade.
Account Requirements
- Opened in the name of the partnership (not individual partners)
- Requires a partnership agreement that:
- Identifies which partners are authorized to trade
- Dictates investment authority and any restrictions
- Defines how profits and losses are allocated among partners
General vs. Limited Partners
| Feature | General Partner | Limited Partner |
|---|---|---|
| Liability | Unlimited - personally liable for partnership debts | Limited to their investment amount |
| Management | Active role in managing the partnership | Passive investor - no management role |
| Trading authority | Typically authorized to trade | Not authorized unless specifically granted |
Key Points
- The partnership agreement is the governing document that controls who can act on behalf of the partnership
- At least one general partner must exist in any partnership
- Limited partners risk losing their limited liability protection if they become too involved in management decisions
Exam Tip: Gotchas
- The partnership agreement, not individual partners' wishes, dictates who can trade. A limited partner cannot simply decide to start placing trades without being authorized in the agreement.
- General partners have unlimited liability; limited partners' liability is capped at their investment.
- Limited partners lose liability protection if they actively manage the partnership.
What Should You Check on Exam Day?
- Can you explain what document controls who may trade on behalf of a partnership?
- Do you know the difference in liability between a general partner and a limited partner?
- Can you state what happens to a limited partner's liability protection if they become too involved in management?
- Do you know whether a limited partner can trade without being authorized in the partnership agreement?
- Can you explain how many general partners a partnership must have at minimum?