How to Divide Partnership Interest for Silent Partners
General partnerships are typically structured so all partners have equal say in business matters. However, with a few tweaks to your partnership agreement, you can ensure that certain investors hold minority interests and are treated as silent partners. You also have the option of setting up a limited partnership that is specifically designed to divide ownership interests between general and silent partners.
A silent partner is an investor in your business who doesn't participate in the management of the company and might not be known as an owner to outsiders. Any owner or group of owners who want to remain silent should collectively own less than a majority interest in the enterprise, so the active partner or partners can make decisions that have the weight of the majority of ownership. In partnership businesses, ownership is allocated to each partner's capital account as a percentage of 100 percent, so silent partners should generally hold no more than 49 percent of the business.
General partnerships are not designed to accommodate arrangements in which partners have unequal rights by default. Under state laws, each partner in a general partnership has equal rights to participate in the business, even if the partner owns only a minority interest in the business. Comparatively, a minority owner in a corporation or limited liability company can be kept silent and out of the daily management of the company by a simple vote of the owners holding the majority interest.
You can use a partnership agreement to define a partner's involvement in a general partnership business so some partners are silent. First, the agreement can establish a division of ownership interest so that a silent partner holds a minority percentage. Then the terms of the agreement can establish that you have complete authority to act on behalf of the partnership, while your silent partner has no authority. An unequal split of the ownership interest and restrictive terms in the partnership agreement, however, won't exempt a silent partner from personal liability for business matters when the business is organized as a general partnership. The silent partner is still a general partner in the eyes of the law.
Upgrading your partnership to a limited partnership, or LP, is generally the best option if you want to create two classes of partners with different levels of involvement in business affairs. An LP has general partners who manage the partnership and are personally liable for all business matters and limited partners who are silent investors with no management rights or personal liability. In an LP, you can divide the ownership percentage any way you like, because a partner's silence is dependent on his classification as a limited partner, not on how much of the partnership he owns. However, it makes sense for the general partners to hold the majority interest in the partnership and the silent investors to buy small percentages.