Silent Partner - Explained
What is a Silent Partner?
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What is a Silent Partner?
Silent Partners are investors in a business whose sole responsibility is providing capital. They do not get involved with the day to day operations of the business, nor have any voting rights. There job is done once the money exchanges hands. Thereafter, they get an agreed upon percentage of the gross profits on a regular basis. They are also known as Limited Partners or Sleeping Partners, as they don't shoulder any liability for the business apart from the money they've invested.
What Does a Silent Partner Do?
Although the Silent Partner shoulders no responsibilities towards the growth and establishment of the business, a good silent partner can offer additional resources like granting access to helpful business acquaintances, guidance for the company's direction, resolving disputes between partners, and more. But the Silent Partner is under no obligation to offer additional sops. Their role is limited to staying in the background and providing capital when necessary, and partake in the profits when they start flowing in.
Creation of a Silent Partnership
Creating a Silent Partnership requires the registration of a business as a Limited Liability Company (LLC) or a general partnership. Once the firm is officially in business, a formal contract is required to legally enter into a Silent Partnership. This contract states the terms and conditions of investments, percentage of profits that will be due to the Silent Partner, the frequency of payments, and other details. Partners will be responsible for meeting all the financial obligations of the business except in case of an LLC.
The Silent Partners Liability
Silent Partners liabilities are chiefly limited to the losses incurred on the investments they've made. Any additional liability needs to be included in the official contract for the Silent Partner to assume.
Silent Partners vs. Secret Partners
Silent Partners in a business are known to the world and their investments aren't discreet. Secret Partners on the other hand participate discreetly in the business, may assume more operational responsibilities and financial liabilities than a Silent Partner but stay behind the scenes. Their participation is anonymous, not limited.
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- Considerations When Forming a Business Entity
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- What are Business Entities?
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- Taxation of Sole Proprietorship
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- Publicly-Traded Partnerships
- A Detailed Explanation of the Limited Liability Company
- A Detailed Explanation of the Corporation
- Keepwell Agreement (Letter of Comfort)
- Personal Service Corporation Definition
- A Detailed Explanation of the Non-Profit Entity
- Public Limited Company (UK)