Silent partnership
What is a silent partnership?
A silent partner participates, in return for a share of the profits, in a business operated by another person (the business owner) or in other assets, by making a capital contribution which becomes part of the assets of the owner of the business or of the other assets. A share in any losses may be contractually excluded. It is a purely internal partnership, which means that it does not exist in the eyes of the law and has neither legal personality nor the capacity to be a party to legal proceedings.
What types of silent partnership are there?
A distinction is made between a typical (genuine) silent partnership, where the silent partner has a stake only in the company’s profits and losses, and an atypical silent partnership. In the latter case, however, the silent partner also has a stake in the company’s assets, hidden reserves and, possibly, the management of the business, as stipulated in the contract.
What happens in the event of insolvency proceedings?
In insolvency proceedings concerning the assets of the business owner, the silent partner may claim his capital contribution as an insolvency claim to the extent that it exceeds the amount of the loss attributable to him. Conversely, he must pay into the insolvency estate any part of his capital contribution that has not yet been paid in full, to the extent necessary to cover his share of the loss.
How is the silent partnership contribution shown on the balance sheet?
A silent partnership contribution must, in principle, be recognised as debt capital in the balance sheet. If, due to the terms of the contract, the position of the silent partner closely resembles that of an equity investor, it is also considered permissible to recognise the contribution separately, between equity and untaxed reserves. If a subordination clause has been agreed, it is likely that the silent partner’s contribution may also be recognised within equity.
What rights does a silent partner have?
If a registered partner participates as a silent partner during the crisis, their silent contribution is treated as equivalent to a loan and is therefore also subject to the repayment restriction. If the silent partner is a corporation, a limited liability company or a partnership in which no general partner is a natural person, and holds at least a 25% share in the enterprise’s value under the law of obligations, and is entitled to co-determination rights comparable to those of at least one limited partner, then they shall be treated as equivalent to a covered partner. The same applies if they exercise a controlling influence.
When does it make sense to set up a silent partnership?
A silent partnership is a form of capital investment that is subject to limited risk and is not subject to disclosure requirements. It can serve as a suitable restructuring tool, particularly for companies in financial difficulty, whereby, for example, major creditors convert their claims into silent partnerships, thereby eliminating interest expenses.
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