Glossary - Silent Partner
A silent partner is an individual or entity that invests capital in a business without taking part in its daily management or operations. They contribute financially and may provide advice or expertise when sought, but their involvement is not visible to the public or to customers. Silent partners share in the profits and losses of the business but do not participate in the active decision-making processes.
Also known as
- Sleeping Partner
Use cases examples
- Partnership Agreement: The silent partner shall contribute a sum of $100,000 to the capital of the partnership but shall not engage in the active management or operational decisions of the business.
- Investment Disclosure: The company has received an investment from a silent partner, who will not be involved in the day-to-day operations or management of the firm but will share in financial outcomes.
Considerations for investors
- Assess the management capabilities of the active partners to ensure the business can thrive without your day-to-day involvement.
- Clearly define the terms of your silent partnership, especially regarding profit sharing, loss liability, and exit mechanisms, in a legally binding agreement.
Considerations for founders
- Understand the silent partner's expectations regarding return on investment and how involved they wish to be in major decisions.
- Keep the silent partner informed of significant business developments, even if they are not involved in the day-to-day operations.
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