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A Simple Explanation of How Does a Silent Partnership Work

How Does a Silent Partnership Work?
Business partnerships are business entities which allow partners to share their liabilities and profits. Partnerships are always a risky business where conducting thorough research is a critical and absolute need. A silent partnership may seem like a great investment opportunity for those who have little or no knowledge about how to go about it, where help is always provided for such a decision.
Uttara Manohar
Last Updated: Jan 24, 2018
Businesses around the world have a number of different ways in how they function and manage the intricacies of the responsibilities that each one comes laden with. A partnership is when two people or more, agree to take on a venture by collaborating with one another within a business. A common kind of partnership termed as 'general', is when both parties agree to share in the company's losses, profits, liabilities, and any other matters that come to the fore.
A silent partnership on the other hand, is when one party comes forward to provide a financial crutch to the company, but stays clear from the everyday workings that happen within the business. This includes all kinds of operations or anything that would have them present within the company.
An agreement is made between the silent party and the one admitting them, by drawing up a letter stating clearly what is expected out of the silent partner, where it is made clear that they aren't part of the day-to-day activities that happen within the organization.
Functioning and Purpose of a Silent Partner
A silent partner is called upon by a party within a business, to be of help when it comes to financing the different needs of the company. Be it for new equipment, aid for advertising and promotion, or remodeling the venue, a business can call upon a silent partner or hire one by publicly announcing this need, to help finance them.
The silent partner can be anyone who is ready to be a part of the company, where they too share equally in the company's ups and downs, and other legalities as stated in the agreement.
Silent partners aren't needed to be present in the company, where this is taken over by the inviting party. They need to only meet the financial requirements and be present for payment transactions if necessary. The pact is made and the agreement is signed by both parties, where a mutual understanding is made.
Silent partners before agreeing to be of financial assistance, need to evaluate the company's past progress, current stance in the market, and future prospects. Once he/she is sure to venture forward into such a proposal, they invest in the company without really being an active part of it.
Silent partners have a say when it comes to a change in management since this is a major factor when it comes to altering the face of the company, with a chance of the new team affecting its profit status. When he/she takes on the venture as a financier, they do so because the management is strong and reliable, so that when changes are made to a team the silent partner can step in.
Attorneys help silent partners make decisions when it come to investing in a company, where he/she weighs the liabilities of the company, before telling the silent partner to move forward in agreement.
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