Many small businesses and investment vehicles are structured as partnerships. Technically, a partnership is created when two or more individuals come together to form a company. A partnership is structured as either a general partnership or a limited liability partnership (LLC), and each differs in terms of how profits, losses and responsibilities are distributed to each participating partner. A silent partner only contributes to the business by way of capital infusion – that is, investing money in the venture – while a general partner is an active manager in business operations.
Within a partnership, a silent partner is any individual who provides funding to the business as his only contribution. Also referred to as a limited partner, a silent partner has less exposure to liability because he does not participate in, or make active decisions about, the day-to-day operations of the business. Instead, a silent partner provides capital to the company when needed (as long as he is able), and his losses are limited to the amount he has contributed. In some cases, a silent partner acts as a consultant to the general partners, offering advice on the running of the business when solicited.
A general partner is the individual or group of individuals in a business partnership with control over the management, operations and use of capital within the company. General partners in a business can act on behalf of the company, and as such have unlimited liability exposure. If the business goes under, a general partner may have his personal assets seized or liquidated to pay creditors and satisfy corporate debts.