Silent Partner vs. General Partner: What’s the Difference?

Silent Partner vs. General Partner: An Overview

Many small businesses and investment vehicles have a partnership structure. Technically, a business partnership is formed when two or more individuals come together for a specific business purpose.

Business entities can be structured as: sole proprietorships, partnerships, qualified joint ventures, corporations, limited liability companies (LLCs), trusts, or estates.

Each business name has its own requirements, obligations and tax code, which may change according to local, state and federal laws. Generally, silent and general partners (GPs) come into play most often when it comes to partnerships and/or LLC structures. Both partnerships and LLCs can differ in terms of method profitlosses and liability are shared between each participating partner. Partnerships and LLCs can also be combined and structured in a variety of ways. As a rule, silent partners are known to contribute to the business only by way capital infusion, i.e. investing money in the business entity, while the general partner is an active manager in business operations.

Key findings

Silent partners can also be called limited partners.
Silent partners/limited partners provide capital to the business entity with the expectation of profit, but they do not directly participate in the management of the business.
General partners are appointed as managers of the business and may also contribute to the general capital.
General partners and limited partners are commonly found in partnerships, limited partnerships, and limited liability corporations.

Silent partners

Silent partners are investors. AND quiet partner is any person who provides financing to a business as their sole contribution. Partnerships and LLCs may have silent partners. Silent partners can also be named limited partners (LPs).

In the company marked as a limited liability companythe liability of a silent partner is limited to the amount of money or property he invests. In an LLC, the partnership agreement will provide detailed information about the obligations of the silent partners. In some cases, silent partners may act as consultants through an advisory board or other situational conditions determined by the company.

General partners

AND general partner most often found in the structure of a limited liability company. Limited liability company structures include both limited partners and general partners. General partners are generally appointed to oversee the management, operations and use of capital within the entity.

As mentioned, a limited partner makes an investment in a business or investment vehicle and their liability is limited to their investment. However, general partners in a limited liability company are fully responsible for the company’s debts. If the business fails, the general partner’s personal assets may be seized or liquidated settle with creditors and pay off corporate debts. If the general partner is itself a business, then the business may be liable for debts in addition to its investments.

General partners can also be found in LLCs. LLCs have more flexibility in structuring the details of the partnership through a partnership agreement. In an LLC structure, owners/investors are usually appointed as members. Members of the LLC are not personally liable for the company’s debts.

Key Considerations: Capital Investment and Partnership Agreements

Business entities need capital for business management. Business partnership capital can come from both silent partners and general partners. General partners are responsible for managing the business or investment portfolio. General partners usually provide some capital to the business, but they also rely on the capital investment of limited partners. Together, the GP and LP investments are combined to create the total capital of the venture.

Partnerships with both general partners and silent/limited partners will detail the entire business provisions in the partnership agreement. Limited liability company business structures must comply with certain legal requirements, but other types of companies may create their own regulations.

Real estate investment portfolios are one common type of limited liability partnership that includes both limited partners and general partners. These vehicles are usually created with the support of an investment company as a general partner. They also include limited partners, which are usually mandatory accredited investors. The partnership agreement will detail how much the general partner will invest, as well as the investment terms for the limited partners. Limited partners will usually be required to make scheduled investments over a period of time.