A silent partner is a business partner who does not have public involvement with the company with which he is involved. Typically, a silent partner also does not have anything to do with the day-to-day control of the business. He may also be referred to as simply an investor or as a shareholder.
These types of partners generally own a part of the business. This means they are entitled to a share of the profits the business makes. The percentage of profits a silent partner is entitled to depends on the terms of the partnership agreement.
There are several reasons why a person may want to be a silent partner. He may want to invest capital in a new business to earn the benefits of the growth of that business, but he may not want to actually run a company. There are numerous other benefits to being a silent investor that may also make this form of business ownership attractive to some.
Some individuals may wish to become silent partners because they want to keep their wealth a secret or because they don't want to be seen as a source of money for perspective entrepreneurs. In other words, such people may want to invest in companies but may not want others to know that they have the money to do so. By remaining silent, they are able to invest without becoming known as wealthy and so they are not susceptible to others asking them to back ventures.
In other cases, silent partners may want to invest in a new or growing company but may not want others to know they are doing so because public knowledge of their involvement with the start-up could interfere with their long-range business model. For example, a software company may wish to purchase a stake in an emerging technology company in the hopes that it can ultimately incorporate the new technology into its existing line of software. If competitors knew that the software company was a partner in the emerging tech company, this could tip off competitors as to future business plans.
Having a silent partner can be beneficial to the other partners within a company as well. The named or known partners of the company get an influx of capital from the silent investor but get to maintain day-to-day control over the company. The named partners, in effect, get to make all the public decisions but have an additional person to share the risk with.