Silent partnership

This term refers to the law of the country selected below.

  Czech Republic

What is a silent partnership?

In the Czech Republic, silent partnerships are governed by Sections 2747 to 2755 of the Civil Code.

Under a silent partnership contract, the silent partner undertakes to make a contribution (whether in cash or in kind), through which they will share in the business results of the entrepreneur (whether a legal or natural person) for the entire duration of the silent partnership. At the same time, the entrepreneur undertakes to pay the silent partner a share of the profits. The contract may also be concluded solely in relation to the operation of one of the entrepreneur’s business units. The law does not require the contract to be in writing, although the written form is recommended.

What rights and obligations does a silent partner have?

A silent partner participates in the profit and loss of the entrepreneur, usually in the agreed amount, otherwise according to the ratio of his contribution and according to established practice between the parties or customary practice. The share of the silent partner is determined from the net profit.

The silent partner has the right to inspect the entrepreneur's business documents and accounting records.

The silent partner does not participate in the management of the entrepreneur's business; his main reason for participation is interest in sharing the results of the business. Information about the silent partnership is not recorded in any public register.

How can a silent partnership be dissolved?

A silent partnership is terminated upon expiration of the agreed period, by notice (at the latest six months before the end of the accounting period), also if the silent partner’s share of the loss reaches the amount of his contribution, in case of termination of the business to which the silent partnership pertains, in case of insolvency of the entrepreneur or the silent partner, and for other reasons.

When is it advisable to set up a silent partnership?

A silent partnership allows for capital participation in the business of a third party with limited risk, which is not subject to disclosure obligations. For the entrepreneur, it is a source of financing while retaining full control over the management of the company.