Silent Partner Agreement

Accounting Dictionary

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Definition: The silent partner agreement is a legal agreement under which an investor commits to make an investment in a partnership, in exchange for the rights accorded to a limited partner. A silent partner takes no part in the day-to-day management of a business, is only liable for the amount of his investment, and is generally not publicly known to be an investor in the business. The silent partner agreement delineates the terms of this arrangement.

A silent partner enters into a silent partner agreement with the partnership. This agreement states the conditions under which the investor will be a silent partner. Typical terms are:

The degree to which the investor shares in the profits and losses of the partnership
The limitation on partnership liabilities by the investor
The amount of the investment made in the partnership by the investor
The rights of the investor to withdraw from the partnership
The rights of the investor to invest more funds in the partnership
That the investor will receive no compensation (such as salary or wages) from the partnership
That the investor cannot participate in the operations of the business in any way
The conditions under which the arrangement shall be terminated (such as through bankruptcy or the death of the managing partner)