Silent partnership

What it means

A silent partnership is a contractual relationship under the Slovak Commercial Code in which the silent partner undertakes to provide a business owner with a capital contribution and to share in the results of the business. In return, they receive an agreed share of the profit.

The silent partner does not appear externally. They are not entered in the Commercial Register, do not act on behalf of the business and are not liable to third parties for the business owner’s debts. They do have the right to inspect the books and check that their profit share is calculated correctly, and they share in losses only up to the amount of their contribution.

Unlike a shareholder’s contribution to share capital, a silent partner acquires no ownership interest or voting rights. A silent partnership is therefore a way to raise capital without changing the company’s ownership structure, for example from a family member or business partner.

How it works in practice

When a client considers a silent partnership, we compare it with other forms of financing: a loan, bringing in a new shareholder or a funding round. It suits cases where the investor wants a share of profits without getting involved in management, and the owner does not want to change the ownership.

The agreement should specify the amount and form of the contribution, how the profit share is calculated, the share of losses, information rights and termination conditions. On termination, the silent partner receives their contribution back adjusted for their share of losses, which must be clearly settled in the contract.

For tax, the profit share paid to a silent partner is treated specifically: for the business it is generally not a deductible expense, and for the silent partner it is taxed under the rules for capital income, often by withholding tax. We always check the current rules before a payout.

What to watch out for

A silent partnership is easily confused with a loan. If the agreement is framed as a fixed interest rate independent of results, it is really a loan and the tax treatment will differ. Conversely, a loan with a profit share may be treated as a silent partnership. Substance decides, not the label.

The silent partner bears the risk of losing the contribution if the business struggles. In the owner’s bankruptcy, the claim for repayment of the contribution ranks weaker than those of ordinary creditors. Investing in a silent partnership should be done with this risk in mind.