Definition and legal basis:

The silent partnership is a special form of internal company under German commercial law. It is regulated in §§ 230-237 of the German Commercial Code (HGB). In this form of company, the silent partner participates in the commercial business of another party with a capital contribution without appearing externally. The owner of the commercial enterprise, also known as the business owner, manages the business alone and acts as the sole entrepreneur in legal transactions. The silent partnership is not a company within the meaning of company law and has no legal personality of its own. It exists only in the internal relationship between the business owner and the silent partner. This structure makes it possible to raise capital for a company without relinquishing control of the business or changing the company structure externally.

Foundation and formal requirements:

No minimum capital is required to form a silent partnership. It is created by the conclusion of a partnership agreement between the business owner and the silent partner. This agreement is not subject to any special formal requirements and can even be concluded verbally. For reasons of proof, however, a written agreement is recommended. The partnership agreement should regulate the following points:
– Amount and type of the silent partner’s contribution
– Participation in profit and loss
– Information and control rights of the silent partner
– Term of the participation and termination modalities
– Provisions in the event of insolvency or liquidation Entry in the commercial register is not required, as the silent partnership does not appear externally. This contributes to the discretion of this form of participation.

Rights and obligations of the parties involved:

The silent partner is obliged to make the agreed contribution. This can be in the form of cash, non-cash assets or services. In return, he receives a right to share in the company’s profits. Loss participation can be contractually excluded, but is limited to the amount of the contribution as standard. In principle, the silent partner has no say in the management of the company. However, they are entitled to statutory control rights, in particular the right to inspect the annual financial statements and audit their accuracy. These rights can be contractually extended, but not completely excluded. The business owner manages the company independently and is solely liable for the liabilities of the business. He is obliged to properly manage the capital contributed by the silent partner and to pay out the agreed share of profits.

Tax treatment:

The tax treatment of the silent partnership depends on whether it is a typical or atypical silent partnership: In the case of a typical silent partnership, the profit share of the silent partner is treated as income from capital assets and is subject to withholding tax. The business owner can deduct the payments to the silent partner as operating expenses. In the case of an atypical silent partnership, where the silent partner also participates in the hidden reserves and goodwill, the income is classified as commercial income. In this case, a co-entrepreneurship is created and the profits are taxed according to the rules for partnerships.

Advantages and disadvantages of the silent partnership:

Advantages:
– Flexible financing option without changing the corporate structure – No disclosure requirements, high level of discretion – No minimum capital requirements – Possibility of loss limitation for the silent partner – Tax advantages, especially for typical silent partnerships Disadvantages:
– Limited control and co-determination rights of the silent partner
– Potential conflicts of interest between business owner and silent partner
– Complex tax treatment, especially for atypical silent partnerships
– Risk of reclassification to another company form if the silent partner’s participation is too high

Areas of application and practical significance:

The silent partnership is particularly suitable for companies that require additional capital without relinquishing control of the business. It is often used in family businesses to allow family members to participate in the company’s success without granting them formal shareholder rights. The silent partnership can also be attractive for investors, as it offers an opportunity to invest in a company without bearing the full entrepreneurial risks. In practice, the silent partnership is often used as an instrument for employee participation or to finance start-ups and growth companies. In summary, it can be said that the silent partnership is a flexible and discrete form of company participation. It makes it possible to raise capital and involve investors without changing the corporate structure externally. The precise structuring of the participation and careful consideration of tax aspects are decisive for the successful use of this form of company.