Partnership Accounts
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.