What is a silent partnership and when to use it

A silent partnership is a private agreement where an investor (silent partner) contributes capital to an entrepreneur, who shares a portion of profit in return.
The silent partner does not act publicly or appear in the company.

Common use cases:

• private investment in a startup

• testing cooperation before company formation

• investment by someone who wants to stay anonymous

• family or friend support of a small business

Legal framework

Regulated by Sections 2747–2755 of the Czech Civil Code.
No legal entity is formed. The agreement:

• is private and written,

• provides profit share rights,

• may include loss participation,

• ends by agreement, notice or business termination.

Key elements of the agreement

• Parties (entrepreneur and silent partner)

• Capital contribution and method of transfer

• Profit (and loss) sharing rules

• Term and termination conditions

• Confidentiality and information access

• Accounting and reporting rules

• Settlement upon exit

• Signatures and date

Common mistakes

• No clear profit split

• Silent partner acts publicly → risk of liability

• No agreement on exit terms

• Missing evidence of capital contributed

• Tax and accounting issues not addressed

Recommendations

Entrepreneur:

• Keep full operational control

• Avoid giving silent partner any public role

Silent partner:

• Secure profit participation

• Get clear access to financial reporting

Practice tip

Great for discreet capital involvement, but it must be handled with legal precision.
One wrong step (e.g. active involvement) and the silent partner becomes liable like a co-owner.

Silent partnership contract template – available for a symbolic fee

I offer a Czech-English contract template for silent partnerships.

Suitable for private investments, startup collaborations or small business co-financing.

Contact me via e-mail or form for fast and reliable support.

FINAL THOUGHTS – WHAT NOW?

A silent partnership agreement isn’t just a formality – it’s a legal shield, if drafted properly. And a trap, if not.

Do you want to be sure your contract will hold up even in a crisis? Get in touch and let’s schedule a meeting. I am a specialist on contract law – more information here.