Silent partnership

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

  Austria   China   Germany   Poland   Turkey

What is a silent partnership (spółka cicha)?

A silent partnership is not a separate type of company or partnership regulated by the Polish Commercial Companies Code. As a rule, it is an unnamed contract concluded under the principle of freedom of contract (Article 353¹ of the Polish Civil Code). In a typical model, the silent partner makes a contribution to an entrepreneur carrying on business in its own name and, in return, participates in the profits of that business on the terms set out in the agreement. Such an agreement does not create a separate legal entity or separate “partnership” assets. As a rule, the silent partner does not appear externally as a partner of the entrepreneur and does not become liable to the entrepreneur’s creditors merely by entering into the agreement.

What types of silent partnership are there?

Polish law does not distinguish statutory types of silent partnership. The terms “typical” and “atypical” silent partnership are used in legal writing and practice, but the scope of the silent partner’s rights – including participation in profits and losses, information rights or elements of co-decision – depends primarily on the agreement.

What happens in insolvency proceedings?

Polish bankruptcy law does not provide a special regime for a silent partner corresponding to the solutions described in the original text. If the entrepreneur becomes bankrupt, the silent partner’s ability to file a claim and the amount of that claim depend on the agreement and on the legal nature of the specific claim. Nor is there a statutory automatic obligation to pay an outstanding part of the contribution into the bankruptcy estate merely because the parties labelled their arrangement a “silent partnership”; such an obligation may arise from the agreement or other applicable provisions.

How is a silent partner’s contribution presented in the balance sheet?

The accounting treatment of a silent partner’s contribution depends on the economic substance and terms of the agreement and on the accounting framework applied. Polish law does not contain a general rule under which such a contribution is always recognised as debt or, subject to specified conditions, automatically as equity. Any subordination of the claim or participation of the silent partner in risk requires a separate accounting and legal analysis.

What rights does a silent partner have?

The rights of a silent partner are determined primarily by the agreement. It may regulate, among other matters, participation in profits and losses, information or inspection rights, termination and settlement rules, and possible consultation rights. Polish law does not provide for the 25% statutory threshold described in the original text or for a special rule equating a silent partner with a limited partner or another category of partner solely because such a participation level is reached.

When may a silent partnership be worth considering?

A silent partnership may be a flexible financing or investment instrument allowing a person to participate economically in another entrepreneur’s business without acquiring the formal status of a shareholder or partner in a commercial company or partnership. When structuring the agreement, tax, accounting and insolvency issues, as well as the risk of a different legal characterisation depending on the arrangement’s actual substance, require separate analysis.

Legal basis: Article 353¹ of the Polish Civil Code; there is no separate statutory regulation of a silent partnership in KSH. Tax, accounting and insolvency consequences depend on the specific agreement and require a separate assessment.