A silent partner can be described as being an investor in a business who provides significant capital, but has no involvement in the day-to-day processes of the business. Silent partners are sometimes called shareholders, and they are entitled to claim a portion of the company’s profits.
Reasons for having a silent partner
Some businesses prefer a silent partner, for several reasons, and there are different types of partnerships. Some individuals who wish to provide start-up capital may not want others to know about their financial status, but a silent partner often has a personal risk in the outcome of the enterprise and not just a financial gain. Sometimes, a silent partner has a strong business position in the company, but cannot reveal his investment for professional reasons. A large corporation might have silent partnerships in many smaller companies which provide software or databases. These large companies may not want to advertise their involvement in small start-up businesses to avoid an onslaught of other small businesses looking for investors.
How does a silent partnership work?
A silent partner is a business partner who shares the profits and losses of the business, but who is not involved with the management. Usually, a silent partner is an individual who provides capital investment for an organisation, whether it is a large or small one, and will share the liability for the companies performance. Generally, people who do not want to share managerial responsibilities, or undertake managerial duties and are looking for investment opportunities are often silent partners. They participate in any tax and cash flow benefits that the company may obtain. Discussing terms and conditions A silent partnership is almost the same as a regular business partnership with a few exceptions, in case of the duties of a silent partner. It is crucial for the people entering the partnership to discuss and legalise the terms and conditions of the partnership before an agreement is made to avoid any complications which may arise in the future. A silent partnership could also work when one person has a viable business idea, but does not want any managerial duties of running a business. They can go into partnership with another individual and provide the investment to run the business, whilst the partner manages and deals with the day-to-day running of the business.