Silent Partner

AAA

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.

INVESTOPEDIA EXPLAINS '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.
 

RELATED TERMS
  1. Active Partner

    An invested person who is involved in the daily operations of ...
  2. Startup Capital

    Startup capital refers to the money that is required to start ...
  3. Angel Investor

    An investor who provides financial backing for small startups ...
  4. Limited Partnership - LP

    Two or more partners united to conduct a business jointly, and ...
  5. Master Limited Partnership - MLP

    A type of limited partnership that is publicly traded. There ...
  6. Partnership

    A business organization in which two or more individuals manage ...
Related Articles
  1. Personal Finance

    How To Become A Corporate Board Member

    We look at how corporate boards are constructed, and how investors can get involved.
  2. Insurance

    Evaluating The Board Of Directors

    Corporate structure can tell you a lot about a company's potential. Learn more here.
  3. Investing Basics

    The Basics Of Corporate Structure

    CEOs, CFOs, presidents and vice presidents: learn how to tell the difference.
  4. Investing

    Georges Doriot And The Birth Of Venture Capital

    Venture capital has been around for centuries, but Georges Doriot turned it into a structured field of investment.
  5. Entrepreneurship

    The Basics Of Financing A Business

    From debt financing to equity financing, there are numerous ways to fund a business startup. But which is the best?
  6. Entrepreneurship

    Small Business Financing: Debt Or Equity?

    There are two sources of financing for small businesses: debt and equity financing. This article explains both.
  7. Active Trading Fundamentals

    Evaluating A Company's Management

    Financial statements don't tell you everything about a company's health. Investigate the management behind the numbers!
  8. Options & Futures

    When Your Business Needs Money: Angel Investors

    If you have a promising business that needs a boost, you may be able to put your faith in these wealthy investors.
  9. Stock Analysis

    What Makes LinnCo Different From MLPs?

    MLPs are some of the favorite investments of dividend investors, as the surge in the energy industry increased the amount of income that MLPs paid out to.
  10. Stock Analysis

    Will American Airlines Fall Back To Earth In 2015?

    The airline industry enjoys blockbuster profits, and American Airlines Group has been a key beneficiary of the favorable trends that have lifted stocks.

You May Also Like

Hot Definitions
  1. DuPont Analysis

    A method of performance measurement that was started by the DuPont Corporation in the 1920s. With this method, assets are ...
  2. Asset Class

    A group of securities that exhibit similar characteristics, behave similarly in the marketplace, and are subject to the same ...
  3. Fiat Money

    Currency that a government has declared to be legal tender, but is not backed by a physical commodity. The value of fiat ...
  4. Interest Rate Risk

    The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between ...
  5. Income Effect

    In the context of economic theory, the income effect is the change in an individual's or economy's income and how that change ...
  6. Price-To-Sales Ratio - PSR

    A valuation ratio that compares a company’s stock price to its revenues. The price-to-sales ratio is an indicator of the ...
Trading Center