This pamphlet provides an overview of silent partners. Topics covered include what a silent partner is, steps to take before becoming a silent partner, and how buy-sell agreements are used.
New Jersey USLegal Pamphlet on Silent Partners
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Multi-State
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US-PMPH-17
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FAQ
The commission paid to the working partner in a business is 5 % of the profit.
Partners share in the profits and losses to the extent of their share in the business. If each contributes 50 percent of the start-up money, then each is entitled to 50 percent of the profits, according to Weltman.
Although state regulations can vary regarding silent partners, their relationship with the business and their potential liability, silent partners are commonly protected from unlimited personal liability for any debts or obligations of the partnership business.
In a partnership, two or more people are jointly and severally responsible for their business. Any member of a partnership may own a share, but all percentages must be at or above 100 percent.
Silent Partners A silent partner is any individual who provides funding to a business as his only contribution. Partnerships and LLCs can have silent partners. Silent partners can also be referred to as limited partners (LPs).
In partnership businesses, ownership is allocated to each partner's capital account as a percentage of 100 percent, so silent partners should generally hold no more than 49 percent of the business.
The silent partner steps back and lets you run the business. Once your business turns a profit, the silent partner receives 20% of the net profit. The profit is what's left after you subtract business expenses from your total sales revenue.
Silent partners are simply investors in the business. Their position as a silent partner accords them the right to review the company's financial statements and to have a voice in decisions that affect changes to the nature or existence of the partnership.
Although silent partners can involve themselves as needed, they usually don't participate in managing the business. Their ownership is motivated by return on investment. Silent partners can prevent other partners from making any drastic changes in business structure.