Silent Partner Agreement Template for United States

A Silent Partner Agreement is a legally binding contract used in the United States that establishes the terms and conditions between an investor (silent partner) who provides capital but maintains no operational control, and the active partner(s) who manage the business. This agreement outlines capital contributions, profit-sharing arrangements, liability limitations, and clearly defines the passive nature of the silent partner's involvement. It ensures compliance with both federal and state partnership laws while protecting the limited liability status of the silent partner.

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What is a Silent Partner Agreement?

The Silent Partner Agreement serves as a crucial document for businesses seeking capital investment without surrendering operational control. This agreement, commonly used in the United States, provides a framework for passive investment while maintaining clear boundaries between ownership and management. The document typically includes detailed provisions for capital contribution, profit sharing, liability protection, and exit strategies. Silent Partner Agreements are particularly valuable for businesses looking to expand without taking on traditional loans or giving up management control. They must comply with both federal and state partnership laws, securities regulations, and tax requirements, making them complex but essential documents for protecting all parties' interests.

What sections should be included in a Silent Partner Agreement?

1. Parties: Identification of the active partner(s) and silent partner(s), including full legal names and addresses

2. Background: Context of the partnership formation and silent partner's involvement

3. Definitions: Key terms used throughout the agreement

4. Capital Contribution: Details of the silent partner's investment amount and terms

5. Profit and Loss Sharing: Distribution of profits and losses between partners

6. Management Rights: Clarification that silent partner has no management rights

7. Liability Limitation: Scope of silent partner's limited liability

8. Term and Termination: Duration of agreement and conditions for termination

What sections are optional to include in a Silent Partner Agreement?

1. Buy-Out Provisions: Terms for buying out the silent partner's interest when partners want predetermined exit mechanisms

2. Death/Incapacity Provisions: Handling of partnership interest upon death or incapacity for succession planning purposes

3. Information Rights: Silent partner's rights to financial information and reports when additional transparency is needed

4. Non-Compete Clause: Restrictions on competitive activities when protecting business interests is crucial

What schedules should be included in a Silent Partner Agreement?

1. Schedule A - Capital Contribution Details: Detailed breakdown of initial investment

2. Schedule B - Profit Sharing Formula: Detailed calculation method for profit distribution

3. Schedule C - Business Plan: Overview of business operations and projections

4. Schedule D - Partner Information: Detailed information about all partners including contact details

5. Appendix 1 - Valuation Method: Agreed method for valuing partnership interests

Authors

Alex Denne

Head of Growth (Open Source Law) @ Genie AI | 3 x UCL-Certified in Contract Law & Drafting | 4+ Years Managing 1M+ Legal Documents

Jurisdiction

United States

Publisher

Genie AI

Document Type

Agreement Contract

Cost

Free to use

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