Are Silent Partners Liable?

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.

Search Legal Terms and Definitions

n. a non-legal term for an investor who puts money into a business, takes no part in management and is often unknown to customers. A “limited partner,” who is prohibited from taking part in management and has no liability for debts beyond his/her investment, is a true silent partner.

How does a silent partner work?

Basically, a silent partner is an individual who invests capital into a business in exchange for a share in the profits or losses of that business. Silent partners are not supposed to have a role in the day-to-day operation of the business, and that is where the term ‘silent’ originates from.

How are silent partners paid?

The first is based strictly on the silent partner’s investment. For instance, if a silent partner invests $100,000 in a company that needs $1,000,000 to operate, then he is considered a 10 percent partner in the company and might receive 10 percent of the company’s annual net profits.

What is a silent partnership agreement?

A silent partner agreement is a written legal agreement under which an investor commits to make an investment in a partnership, in exchange for the rights accorded to a limited partner. The degree to which the investor shares in the profits and losses of the partnership (usually based on the amount of funds invested)