how silent partners work
as with other partnership agreements a silent partnership generally calls for a formal agreement in writing before forming a silent partnership the business must be registered either as a general partnership or a limited liability partnership llp per state regulations all parties will be responsible for ensuring that the business s financial obligations are met including any general expenses or applicable taxes except those that are exempt if the partnership is formed as part of a limited liability company llc a partnership agreement designates which parties are general partners or silent partners this serves as an outline to which functions both financial and operational the general partner will perform as well as the financial obligations that are assumed by the silent partner additionally it includes the earnings percentage due to each partner in regard to business profits silent partners are liable for any losses up to their invested capital amount as well as any liability they have assumed as part of the creation of the business participating as a silent partner is a suitable form of investment for those who want to have a stake in a growing business without exposing themselves to unlimited liability contracts should include terms for buying out the ownership stake held by a silent partner or otherwise dissolving the partnership an entrepreneur starting a business might welcome the capital provided by a silent partner when getting their business off the ground however if the business becomes successful it may become preferable to buy out the silent partner rather than share profits long term buyout terms in a contract should address the possibility of an outside investor buying out a silent partner also a silent partner might wish to dissolve a contract after a certain period if they determine the business is unlikely to become profitable however the contract is structured the silent partner will expect a certain minimum return on investment if the business becomes profitable their risk will likely also be limited to no more than the capital invested 