Silent Participations

In this financing method an investor (so called silent partner) participates in the commercial business of another person by providing a capital deposit and in return receiving a participation in the profits of the company.

The big advantage of this financing method is that the silent partnership will generally not be discernible for outsiders. There is no requirement of enrolling the silent partnership in the register of corporations and its status cannot be recognized from the company’s trade name. This is only different for silent participations in stock corporations. These participations must be enrolled in the register of corporations.

Another advantage is that the parties are very flexible in the contractual design of the participation. The company’s financing can therefore be fitted to the individual needs of the investor and the company seeking capital. For example the silent partner can participate in the losses of the company, or such a participation in the company’s losses can be ruled out by the contract. Moreover, apart from the silent partner’s right to monitor the company’s business, which according to applicable law must compulsorily be granted, the silent partner can additionally be granted rights to be informed and to participate in the company’s decision making.

If the silent participations are to be offered publicly, a sales prospectus must be published which was approved by BaFin beforehand. Distribution companies need a permission pursuant to § 34f of the German law regarding the regulation of trade, commerce and industry (Gewerbeordnung).