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.
Puerto Rico USLegal Pamphlet on Silent Partners
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US-PMPH-17
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FAQ
There is no such thing as a 50/50 with a silent partner . 51/49 where you are the 51 % and you can tell the partner to be silent .
A silent partner is 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.
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.
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.
Silent partners have limited accounting and legal responsibility. These professionals are able to keep their partnerships private from the public. Silent partners also enjoy limited legal liability.
But what is a fair percentage for an investor? When it comes to angel investors, the general rule is to offer approximately 20-25% of your business earnings. If you're selling the business in its infancy, this is the amount that investors will expect in returns.
Businesses earn profits based on the size of the company. Partners divide their profits equally. By contributing 50% of the startup money each will gain the right to 50% of the profits, Weltman wrote.
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.
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.