What is a Silent Partner?

Answer:
A silent partner is an investor who provides

significant capital but chooses not to become involved in the day-to-day operation of the business. A silent partner is often considered a shareholder, however, so he or she is entitled to claim a portion of the company's profits or suffer losses up to the amount of his or her initial investment.

There are a number of reasons why an investor may want to remain a silent partner. Some people in a position to provide start-up capital may not want others to know their true financial status. Investing in a friend's new online auction site or a relative's first restaurant may be a personal decision, not the beginning of a career as a speculative investor. A silent partner often has a personal stake in the outcome of the enterprise, not just an interest in profit.

Another reason an investor may pursue silent partner status is to prevent the appearance of a conflict of interest. An owner of a family-oriented business may not want to reveal an investment in a company that publishes adult materials, for instance. Even if the investment of capital is strictly for profit, a silent partner may not feel comfortable having his or her identity linked publicly with the company.

Sometimes a silent partner has a strong business interest in the company, but cannot reveal his or her investment for professional reasons. A large corporation such as GOOGLE or Microsoft may be a silent partner in several small start-up companies which provide proprietary software or databases, for example. These large companies may not want to advertise their involvement in small start-ups in order to avoid an onslaught of other small companies looking for investors. A silent partner generally remains silent for understandable reasons.