Silent Partner

DEFINITION of 'Silent Partner'

An individual whose involvement in a partnership is limited to providing capital to the business. A silent partner is seldom involved in the partnership's daily operations and does not generally participate in management meetings. A silent partner is also known as a “limited partner", since his or her liability is typically limited to the amount invested in the partnership. Apart from providing capital, an effective silent partner can benefit the enterprise by giving guidance when solicited, providing business contacts to develop the business, and stepping in for mediation when a dispute arises between the other partners.

BREAKING DOWN 'Silent Partner'

The silent partner role may not be satisfying to an experienced executive who is used to running the show on his or her own, as it is a background role that cedes control to the general partner.

Since the general partner calls all the shots in a partnership, the silent partner must have full confidence in the general partner's ability to grow the business. The silent partner may also need to ensure that their management styles are compatible.

Silent partners are liable for any losses up to their invested capital amount, and they participate in any tax and cash flow benefits. Participating as a silent partner is a suitable way to invest for individuals who want to have a stake in a growing business without exposing themselves to unlimited liability. An individual who is thinking of becoming a silent partner should fully understand the responsibilities and obligations of this position, and should seek legal advice in case of any doubts.
 

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