Hi there,

I am considering investing some money in a new startup company as a silent partner.

The deal is that I come up with the capital, say £10k for a 10% share of the company.

From what I understand a silent partner to be, I give them £10k for 10% of the company, I will be liable to any profits and losses, but will have no say in the running / management of the company.

I have been told that assuming they are in profit, I will receive 10% of the profits each month.


My questions are:

1) What is the extent of my liability to the company should they be at a loss?
Say they end up in debt, would I be liable to pay off 10% of this debt?

2) If I pull out, would I have to find someone who will agree to buy my share, and will I be able to take back the full £10k that I originally put in?

3) They told me that I would have to give 12 months notice if I want to pull out. This sounds too long to me, then they said they could agree on a 9 month notice period. Is this a 'normal' or reasonable notice period in your experience?

4) What legal documents would the company and I need to exchange/have to set me up as a silent partner?

5) If the company files bankruptcy, where does that leave me as a silent partner re. the capital I have invested and liabilities?


Is there anything else I should consider?


Thanks in advance for any advice / pointers!

If this is a company then you will be a shareholder and, unless you become a director, would not be expected to have any say in its running day to day. You have no liabilities over and above the amount you invest. The only way you can exit is to find a buyer, unless you have a shareholder agreement obliging other holders to buy your shares. The amount you receive from a buyer depends on their valuation of the company. A notice period to pull out is rather meaningless as you can only pull out if your shares are sold. It would be unusual to have a such a restriction as this would mean a potential purchaser having to wait for months before receiving the shares from you after an agreement, in which time the shares could have decreased in value compared to the price offered. If the company goes into liquidation, you still cannot be liable for more than your investment. Make sure you see the articles and amy shareholder agreement. Any terms under which you are taking the shares should be in a written agreement and be reasonable (the notice period is not reasonable in my opinion for the reasons stated). For a small private company, the chances of having your shares bought are small, unless it is extremely successful. You could have more say if made a director also, or perhaps they could consider preference shares, whereby you receive a fixed percentage dividend each year (if they issue one) in preference to the ordinary shareholders.

Partners share profits and losses. A partnership is basically a settlement between two or more groups or firms in which profit and loss are equally divided!