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Silent Partner/ Investor

Los Angeles, CA |


I'm interested in investing in a new start up business. However, I only want to be a silent partner.

Can this be done without my name being on the lease, bank accounts etc.

Also what is a fair or is there a standard a silent partner should ask for? For example of the business is asking $40,000 and I give them $10,000 is it fair to ask for 25%.

I was thinking 25% and ill be partner for life or 25% until loan is paid back then down to 15% for life.

Is that fair? Comments? suggestions?

Attorney Answers 4


Based on your question, I am hoping you have the services of a good CPA. Your questions are essentially commercial, not legal. Issuing some of the secutities you mention are very complicated. What you call "for life" (i.e. ownership) is much simpler. Make sure you don't invest with someone who forms their corporation or LLC online. You will need some advice from an attorney on some very fundamental matters.

Further, this silent partner request which I see a lot on Avvo - why? A shareholder's liability is limited to the amount of the investment so who cares who you are?

The above is general legal and business analysis. It is not "legal advice" but analysis, and different lawyers may analyse this matter differently, especially if there are additional facts not reflected in the question. I am not your attorney until retained by a written retainer agreement signed by both of us. I am only licensed in California. See also terms and conditions item 9, incorporated as if it was reprinted here.

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Mr. Doland's advice is, as always, right on target. If you invest in a correctly developed entity like a corporation or LLC, your risk is limited to the size of your investment. There is certainly no "standard" for a silent partner -- it is whatever that investor agrees with the other investor.
As Mr. Doland says, a good accountant can be enormously helpful in a situation like this. 510-208-5500. This answer does not create an attorney-client relationship. It is not legal advice, because it is only of a general nature. Please contact a lawyer qualified in your jurisdiction to discuss your situation in confidence, using your factual details. Avvo answers are only general legal responses. Item 9 of's Terms and Conditions are incorporated in this disclaimer as though it were printed here.

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First, you need a good tax and business attorney to review the LLC Operating Agreeement to make sure you are protected. Typically, the majority owner will have his lawyer prepare the agreements and he will be protected. Also, you may find that some creditors (particularly banks) will require you to sign a personal guarantee. That could expose you to substantial additional liability. Also, some States will make you personally responsible for Sales Tax and employment taxes even though you are not going to be a check signer.

Also, as commented by the other attorneys, you will need a good CPA not only in the formation stage but to make sure the financial matters are being done correctly.

Good luck in your business!

Ron Cappuccio

If you do not like this answer or disagree, please look at one of the other answers provided. It is not necessary for you to try prove this answer is "wrong" or something with which you do not agree. This is a free service for you based on limited facts. Nevertheless, many times you need to consult an attorney with the details to get actual advice specific to your concerns. Do not put too many details in your questions or comments because this makes the information public and could hurt you. Government Regulations contained in IRS Circular 230 regulate written communications about Federal tax matters, including e-mail, between us and our clients. This is another attempt by the government to limit your rights and to extend the control of government over individuals and businesses. Nevertheless, such communications are either opinions or other written communications. This is not an opinion. It is other written communication and was not written to be relied upon, by itself, to avoid any tax penalties. In order to receive assurances of protection from tax penalties from a written communication, you should get an opinion letter. If you would like to discuss an opinion letter relating to any matter, please contact me and I will explain what is involved and what it will cost.

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There are many scenarios that could structure your arrangement. It depends on what you agree to. You will also want to be sure all the required securities filings are made and that you are covered in your investor documentation as well as in the LLC agreement. It is not uncommon to invest in a company in exchange for a convertible note that is repaid, while also granting you an interest in the company . You really will need to consult with a CPA and an attorney prior to signing any documents.
As far as your name goes, as a creditor, you don't need to sign any leases etc. But as a Member, you will need to authorize the manager to enter into leases and sometimes landlords will request personal guarantees.

Our replies to Avvo questions should not be considered specific legal advice to any individual, and no attorney-client relationship is formed with you. Our aim is to provide general principles that may be useful to the Avvo community as a whole. You should seek individual legal advice pertaining to your specific factual situation, and the laws applicable to your jurisdiction.

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