The pros of being a silent partner include less responsibility and effortless investing, while the cons are legal risk, financial risk, and zero influence in the activities of the business in which you partner.
As a silent partner, you invest money into the business and earn a return on that money when the business makes a profit. As such, you are not obligated to work long hours to ensure the business is profitable. Silent partners do not need to involve themselves in the daily operations of the business.
A silent partner does not need to have any knowledge of the company. Since they have no say in the business operations, it's not unusual for a silent partner to have just a shallow understanding of the industry and how it operates. It is also for these reasons that a silent partner faces a lot of risks.
Because of the nature of their interest in a business, silent partners have limited liability that extends only to the amount of capital they invest in the business. Due to limited liability rules, a silent partner may lose up to their entire investment in a firm but no more than that.
As hands-off partners, silent partners are often immune to legal actions taken against the firm and its management.
Silent partner liability usually does not extend beyond the amount of their capital investment. Signing up to be a silent partner can be a good form of investment for individuals seeking a stake in a growing business without exposing themselves to unlimited liability.
While you can sign on as a silent partner without much experience -- if you have the funds to do so -- you should take care to measure the risks of any large investment.
