What is a silent/atypical silent participation?

Currently, some esports teams are trying to acquire financing to secure or enable growth in 2020.

I have already published several articles on the subject of financing, including one on the subject of stock corporations for esport teams(see this article). See also this post on the subject. Another participation option is that of the silent partnership or the atypical silent partnership. Here, too, one will have to decide/ask beforehand whether the investor is more of a strategic nature or whether it is a purely financial investor. For more information on this problem, see this post.

To the basis

Incidentally, a silent participation may be provided in financial form, in kind or in kind. For example, an investor could bring in a gaming house where players can train instead of money.

The silent shareholder receives a profit share for the contribution, which can be designed in many variants. In most cases, society does not participate in the loss. Here, too, it is important to have concrete interests and arrangements.

The silent company is not entered in the commercial register and is therefore not recognizable to outsiders for the fiduciary management of shareholder shares. In most cases, confidentiality is even agreed. The silent society is regulated in Sections 230 to 236 of the German Commercial Code (HGB). Section 230 I HGB:

Anyone who participates as a silent partner in a commercial business operated by another person with a capital contribution must make the contribution in such a way that it becomes part of the assets of the owner of the commercial business.

It can also be seen that the contribution (especially of money) is not a loan, which is why the silent partnership can be a good tool for start-ups that might otherwise have a problem of balance sheet over-indebtedness.

The conclusion of the relevant contract does not need a notary and is therefore not subject to any special form.

Basically, there are two different forms. In the typical silent company, the investor receives a profit share and, depending on the agreement, is also involved in the loss. However, he does not receive any shareholding in the company’s assets, does not participate in business or corporate management and may only review the annual financial statements. This is the typical case of a financial investor who is often not even particularly familiar with the industry.

This is different for a so-called atypically silent partner. The latter has assets and control rights and must therefore be regarded as a co-entrepreneur. In addition to the profit and loss, he is involved in the company’s assets and a loss share can only be excluded exceptionally.

Variations

A silent participation can be concluded in many variations and contracts for this usually include regulations on the amount of profit participation, the rights of the silent partner, the way in which profits are taken, rights of termination, maturities obligations of the company (or its managing director) in which it participates.

For example, the participation of other silent partners without the consent of the previous shareholder can be excluded.

It depends

Due to the variety of regulatory possibilities, not only a precise balance of interests with the investor is necessary, but also the planning of the participation and thus the contents of the shareholder agreement. While standard statutes for a limited liability company often contain more or less the same regulations and are formulated only slightly differently, contracts for silent participations can be very different.