date | theme
26. September 2018 | Typical and Atypical Silent Society
11. November 2018 | Atypical silent company to GmbH: trade tax exemption
10. May 2019 | Advantages of the silent partnership: trade tax – inheritance tax – losses – sales
27. May 2019 | Silent society: on balance sheet / legal / economic view (this contribution)
05. May 2020 | Silent Society: The Contract Design and the Social Contract
The form of participation of the silent partnership according to § 230 HGB can take place both at a corporation such as a GmbH or an AG, as well as at a partnership such as OHG or a GmbH & Co. KG. A silent partner can choose whether to participate in a company in a typically silent or atypically silent manner. The choice of the silent participation form has accounting, legal and economic effects on the silent partner and on the company. The aim is to optimize the advantages of the company and the silent partner when founding a silent company.
In the video we explain to you what advantages the atypical silent and the typical silent participation in a GmbH bring to the silent shareholder.
1st introduction
1.1. Background
Entrepreneurs must keep a cool head and consider investments even in economically difficult times. Current laws help them to get corresponding tax benefits from it. While the authorities are busy searching for new sources of tax and closing tax loopholes, taxpayers are more likely to try to find concepts and factual arrangements to avoid or minimize tax burdens. [1]
The possibility of saving taxes begins with the choice of company law. When setting up a company, a variety of legal forms are available to choose from, for example pure corporations, partnerships and mixed forms such as GmbH & Co. KG. The establishment of a limited liability company (GmbH) is very common, as the liability risk can be limited here. In order to increase liquidity quickly and flexibly, a silent company in a GmbH is often considered. By introducing a silent partnership, income tax advantages of the partnership can be claimed in the form of an allowance on business tax. In addition, the partnership offers further tax advantages, since it does not have to pay income tax itself and the profits or losses of the individual shareholders are indicated in their tax return. [] 2]
The establishment of a GmbH with a silent company, also called silent participation, takes place by concluding the company agreement. The partnership agreement of the GmbH with a silent participation requires in principle no special form. In exceptional cases, notarisation is mandatory. The partnership agreement of the GmbH with a silent participation can be typical or atypical.
The atypical silent society, in contrast to the typical silent society, is characterized by a co-entrepreneur risk. In addition, the atypical silent society includes a co-entrepreneur initiative. A common feature is that the silent partner participates in the profit in both legal forms.
Silent participations are not only interesting for companies, but also for investors, as they are a highly flexible means of corporate financing. [3] For investors, the silent participation is regarded as an investment opportunity which is an option to initial investments and differs from ordinary investment opportunities in its two forms, typical and atypical.
1.2. Objective
The aim of this work is to present the tax options of corporations through typical and atypical silent partnerships. It also shows the accounting and tax treatment of silent partnerships and the tax, legal and economic consequences of silent partnerships. In this context, the effects of the silent society are based on practical examples such as the BFH judgment of 21. May 2014 and based on a model contract of an atypical company. The main focus is on whether taxes can be saved by a silent participation in a corporation. Furthermore, it will be analyzed here what significance the income and business tax have in a silent society. In the course of the work, not only the tax analysis of the silent society should be carried out, but also the legal effects with the rights and obligations of the participants and the economic significance as a financing instrument should be considered.
1.3. procedure
The present work is divided into six chapters. Following the introduction to Chapter 1, Chapter 2 first defines the concepts of typical and atypical silent society. Chapter 3 explains the accounting and tax treatment of silent partnerships; It also presents the typical and atypical silent society with associated practical examples and the explanation of the termination of the silent society. The legal effects of silent society are analyzed in Chapter 4. Chapter 5 deals with the economic effects of a silent society. The work ends with a conclusion and an outlook in Chapter 6.
2. definition and manifestations of the silent society
2.1 Characteristics of the Quiet Society
The silent society is regulated in §§ 230 to 237 HGB. According to commercial law, there is no definition of a silent society. However, according to § 230 HGB, a silent partner is one who participates in the commercial business of another with a capital contribution, whereby this contribution becomes the property of the owner of the commercial business. [4] Consequently, a silent partnership must be composed of at least two companies, the silent partner and the business owner, which may well be a partnership or a corporation. The capital contribution may be made in cash, in kind or in use. [] 5]
The business owner of the commercial trade must have the property of a merchant. The silent partner does not take part in legal transactions nor does he appear externally. He can be a natural or legal person and is generally excluded from the management and representation. [6] Therefore, it is basically open to every form of society to conclude a silent society.
A silent society is a purely internal company of commercial law without legal external relations, which need not be recognizable to the outside world. [7] The silent partner may therefore not represent the company together with the commercial trader. In addition, it is not possible for the company to participate as a domestic company in a further commercial transaction because the latter itself is not eligible for commitment. [8] This form of commercial transactions is only allowed to the holder of the commercial transaction or the silent party in his own name for his own person. In addition, the silent partner is not personally liable for the liabilities of the company. According to § 230 para 2 HGB, only the owner of the establishment is entitled to execute legal transactions. The silent partnership does not require a direct participation in the entire business, but has the possibility to refer to a part of the business or individual branches of business. [9]
According to § 705 BGB, a partnership contract must be concluded between the entrepreneur and the silent party. There are only a few mandatory regulations, otherwise the design of the silent social contract is largely free. In this case, the silent company does not have to be disclosed to the commercial register, since in turn no commercial trade or no company is operated with the exception of a silent participation in a public limited company (AG).[10]
In principle, a transformation of a GmbH into a silent company is not possible. The participation of a silent partner in the GmbH, which is also called GmbH & Still, can be carried out. This creates a silent company under continuation of the GmbH. In addition, a transformation of the GmbH into a partnership with subsequent justification of a silent participation is possible.
2.2. Manifestations of the silent society
2.2.1. Typical silent society
The silent society is distinguished into typical and atypical silent society. The typical silent society, also called a genuine silent society, is not subject to any accounting obligation as such. [11] It is in accordance with § 20 Abs. 1 no. 4 EStG tax law as a loan grant. [12] As a rule, the typical silent partner is not involved in the hidden reserves of the main company; It is therefore entitled to repayment of its paid-up contributions upon termination of the intra-corporate company.[13] Thus, the profit-sharing of the typical silent partnership is limited to the current result. Whether and to what extent the silent partner should also participate in the loss is to be regulated in advance in the social contract. In addition, the typical silent partner is not entitled and obliged to the management. [] 14]
In summary, the typical silent participation constitutes a capital injection by the investor into the assets of the entrepreneur to be financed. Through this contribution, the investor participates in the current profit or the corresponding loss of the company. However, it does not acquire any influence on the management of the company or any participation in the assets of the company. Thus, the typical silent partner has only one financing function. Furthermore, the typical silent partner is not granted any rights to influence the fortunes of the company.
2.2.2. Atypical silent society
In principle, there is no explanation of the atypical silent society in the laws. The designation “atypical” is in commercial and corporate law more an expression for various forms of design of a silent society that deviate from the legal provisions of §§ 230 to 237 HGB. [15] This can be done, for example, by granting asset management rights, but especially by participating in the hidden reserves. Accordingly, the atypical silent partner is granted more rights than the silent partner, since his position resembles that of a limited partner. Basically, under civil law, the atypical silent partnership differs predominantly from the typical silent partnership in that the atypical silent partner is granted a participation in the increase in the value of the company, a say or management powers.
The atypical silent society is also a purely domestic society which complies with the provisions of §§ 230 ff. HGB must follow without restriction, regardless of rights that are approved beforehand. [16] It is mainly an atypical silent partnership if the silent partner is a co-entrepreneur. This means that he is regarded as a shareholder by bearing a co-entrepreneur risk and being able to take a co-entrepreneur initiative. [] 17)
Figure 1 illustrates the differences between the typical and atypical silent society.
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Figure 1: Delineation between typical and atypical silent society (Source: Kaminski, B.; Strunk, G. (2012), p. 26)
A co-entrepreneur risk means a company-legal or economically comparable participation in the success or failure of a company. A co-entrepreneurship is justified for tax purposes. Ultimately, the atypical silent participant receives a position comparable to the entrepreneur. [] 18)
An atypical silent partnership is spoken of if the silent partner has a co-entrepreneur risk in the form of an investment in assets and a co-entrepreneur initiative in the form of rights of a limited partner.
The atypical silent partnership is also based on the silent partner’s participation in the company’s assets. As a rule, in the silent society there is no total handpower; This is also not founded by the legal participation. [19] There is exclusively a real property community between the silent partner and the business owner. Accordingly, the assets of the entrepreneur in the internal relationship are seen as joint assets of both partners. In addition, the silent partner has a right to a change in the value of the assets that accrue to him only when he leaves the company. However, there is also an atypical silent company if there is no asset participation, but the silent participant can, for example, decisively influence the fortunes of the GmbH. Thus, the atypical silent partner is not a mere financier of the company, but rather an entrepreneur. [20]
Furthermore, the co-entrepreneurship entails strong control rights and certain management powers. In addition, existing rights of opposition, approval requirements and instruction rights can be granted by further participation powers in favour of the silent partner, which can extend to the transfer of direct management. [] 21]
In addition, the atypical silent partner receives an interest in the performance of assets and business value. In doing so, he receives a special payment on termination of his involvement or non-continuation of the company, which is linked to the increase in the value of the company. [] 22]
In summary, the silent society, whether a typical or atypical silent society, is an important form of financing of equity and debt capital. Due to the different designs of the silent society in the direction of typical and atypical, companies have many leeway. For this reason, the use of a silent participation is particularly popular among corporations today. However, a company should have a viable and convincing entrepreneurial approach as a prerequisite for winning a typical or atypical participation. [23] Therefore, silent participation is rather unsuitable for crisis financing.
3.1.1. Accounting treatment in the HGB balance sheet
According to §§ 1 to 6 HGB, the silent society itself is not a merchant and therefore does not have to keep books. [24] In principle, there are no special regulations for the accounting of the silent partnership according to HGB. Thus, there is no opinion of the Institute of Auditors in Germany e.V. (IDW) on the regulation of accounting.[25] However, the owner of the commercial trade as a merchant according to § 39 HGB must draw up a trade balance at the end of the financial year. As a rule, this is a balance of assets in which the state of the business owner’s assets at the end of the financial year is reflected and in which the profit and loss in the past financial year can be determined by comparison with the state of the assets at the end of the previous financial year. A typical silent partnership enters into force under tax law if the company complies with the legal provisions of §§ 230 to 237 HGB.
Also in terms of taxation, there are important differences between the typical and atypical silent society. From a tax point of view, the typical silent partnership constitutes a debt participation and, because it is a purely domestic company, is not an independent tax entity and is not subject to income and corporate tax. Their tax subjects include the holder of the commercial transaction and the silent partnership partner, both of whom are taxed at income tax or corporation tax on their profits from the commercial trade. [26] In particular, in the case of a typical silent partnership, the profit shares to be paid out by the company or by the issuer of the silent partnership are tax deductible as operating expenses; This reduces the taxable profit.
In addition, the typical silent company must be passivated as debt capital in the company’s trade balance sheet according to HGB. The reason for this is that, in the event of the insolvency of the holder, the silent partnership party can assert its contribution as an insolvency claim and thus be treated as an equivalent to other creditors. Basically, the accounting entry as a liability item should be clearly carried out in equity or debt, otherwise § 247 para. 1 HGB is injured. Therefore, equity and debt should be shown separately. Consequently, an independent balance sheet item between equity and debt cannot be considered.
In addition, the general norm of § 264 para. 2 sentence 1 HGB, which requires a picture of the earnings, financial and asset situation corresponding to the actual circumstances. Primarily, the equity level should also be able to be determined precisely and undistorted in order to be able to calculate important return measures. [] 27]
For the determination of the profit share of the silent partner, both the commercial and the tax balance sheet comes into consideration. Which of the two is used in the distribution of profits should have been specified in the articles of association. In the absence of such a determination, the profit on the trade balance shall be used.
3.1.2. Tax accounting treatment
The tax balance sheet is the balance sheet to be prepared under tax regulations, which is derived from the commercial balance sheet of companies subject to accounting under commercial law. Among other things, the ratio of the tax balance to the trade balance is determined by the decisiveness principle. Accordingly, when drawing up the trade balance according to § 5 para. 1 EStG applicable principles of proper accounting (GoB) are also taken into account when drawing up the tax balance sheet. [28] However, this only applies to the extent that commercial GoB does not conflict with mandatory tax regulations. Special recognition and valuation regulations are given in §§ 5 to 7 EStG, which must be complied with by tax law.
In the agreement of the typical silent partnership, the essential question is on what basis the profit share of the silent partner should be determined. Provided that the silent partner has not been granted any further rights in the articles of association, he may, in accordance with § 233 para. 1 HGB only demand the copy of the annual balance sheet and check its correctness by inspection of the books and papers. If the balance sheet drawn up by the managing director is correct, the typical silent partner must accept it. The correctness of the balance sheet is given if it is drawn up in accordance with the principles of proper commercial accounting. The typical silent partner, who is neither involved in the hidden reserves nor has a loss participation and in addition according to § 233 para. 1 HGB can show the statutory control rights, has a debt-capital character in the tax balance sheet.
In the case of the tax balance sheet, it must in principle be noted that the tax requirements for the balance sheet are based on a factual result. The tax balance sheet should reflect the actual economic situation as reliably as possible.
In the typical silent society, determining the tax balance as the basis of profit distribution is particularly advantageous, since it represents a more precise picture of the annual result than the trade balance. It should be noted here that the silent partner is not involved in the business results, but only in profit or loss, which is not influenced by extraordinary income or losses. The contribution of the silent partner is in accordance with § 6 para. 1 no. 2 and no. 3 EStG with the acquisition costs or the higher partial value in the tax balance. [] 30]
In principle, tax profit is understood to be profit determined according to tax regulations.[31] According to § 4 para. 1 sentence 1 EStG is the profit the difference between the operating assets at the end of the marketing year and the operating assets at the end of the preceding marketing year, increased by the value of the withdrawals and reduced by the value of the deposits.
The following principles must be taken into account when measuring the silent partner’s share of profits: The profits and losses arising from working capital always have an impact on the silent partner’s participation. The same applies to income from the sale of fixed assets. In contrast, when calculating the silent partnership partner's share of profits, neither the income from increases in value nor the profits arising from the dissolution of open reserves are to be taken into account.[32] The special write-offs must also not increase the profit of the silent partner. The evaluation is based on objective standards, while the partial value forms the lowest limit, which must not be undershot.
As soon as the tax balance sheet is determined in order to calculate the profit share of the silent partner of a limited liability company, it must be interpreted in advance in individual cases whether the tax balance of the limited liability company comes into consideration before or after the deduction of corporate tax. As a rule, the profit share of the silent partner can be calculated both after profit before corporation tax and after profit reduced by corporation tax. [34] As a result, the different participation ratios will make it possible to achieve approximately the same absolute profit shares. To presuppose the profit share before deduction of the corporate income tax is more appropriate or appropriate, since the profit share of the silent partner ultimately reduces the company’s taxable income, as a result of which the corporate income tax is only attributable to the remaining profits. Accordingly, a calculation of the silent partner's share of profits after the tax profit before tax would put the silent partner in a better position than the shareholders of the limited liability company.[35] However, in order to achieve this result, appropriate contractual arrangements are absolutely necessary, since if the tax profit is directly related to the profit on the balance sheet, the profit after deduction of corporate and business tax would have to be taken into account. [] 36]
3.1.3. Tax treatment Income tax
As already mentioned, the typical silent society is a domestic company, which is therefore not subject to income tax or corporate tax. Therefore, it is not an independent tax entity. As mentioned, the tax entities are the owner of the commercial business and the silent partner himself.[37] For this reason, the income and corporate tax treatment is taxation in relation to the owner of the commercial transaction and taxation of profit or loss. Losses in the typical silent partner. [] 38]
In general, from an income tax perspective, the position of the silent partner depends on whether a typical or atypical silent partnership is present. [39] The silent partner assumes the position of lender if he holds his participation in private assets. According to § 20 Abs. 1 no. 4 EStG, the typical silent partner receives income from capital assets.[40] Furthermore, according to § 11 EStG, the income is taxable only with the inflow to the participant.
Revenues from the silent partnership include the share of profits resulting from the profit determination of the trader using the profit distribution key. In addition, the revenues include the profit shares used to replenish the deposit reduced by losses. Therefore, the timing of the inflow of the profit claim and its adequacy are decisive for the taxation of the silent partner’s profit shares. This should therefore be checked in advance, since in the event of a mismatch a hidden profit distribution can result, which according to § 8 para. 3 No. 2 KStG does not reduce the income of the corporation.
In addition, expenses such as interest on debts and consultancy costs related to the acquisition and holding of the participation may not be deducted as advertising costs. If the silent partner is allowed an unreasonably high profit share, then in the case of a silent company there is a hidden distribution of profits, which does not survive a comparison with a third party. [41]
In addition, the profit shares of the silent partner are subject to § 43 para. 1 no. 3 EStG of capital gains tax. This means that the owner of the silent partnership must withhold 25 percent capital gains tax from the profit share. In addition, the silent partnership partner can later have them counted against the income tax. If losses occur, he can deduct them from the advertising costs for income from capital assets. If the conditions of § 32d para 2 EStG are fulfilled, the income from capital assets of the silent partner is subject to the individual tax rate. [] 42]
As soon as the owner of the commercial business is commercially active, the profit in accordance with § 4 para. 1 EStG is determined by an operating capital comparison. With regard to income tax, the business owner must process the profit share of the typical silent partner as operating expense. In addition, the silent partnership partner’s contribution must be recorded for tax purposes as debt or other liabilities. Therefore, the profit shares due to the silent participation in the past financial year are to be deducted from the balance sheet as a liability and thus as a profit-reducing operating expense. [43] The profit shares already arise on the balance sheet date and therefore belong economically to the expiring accounting period. As a rule, the silent partner receives his profit share only in the following financial year, since this entitlement arises only after the end of the financial year. [] 44
Again, it can be agreed between the two shareholders that the silent partner is also involved in the loss of the holder, so that the loss is entered into his deposit account in a profit-reducing manner. The loss participation ends according to § 232 Abs. 2 HGB when the balance on the deposit account is used up.
3.1.4. Tax treatment Business tax
According to § 2 para. 1 GewStG is the subject of business tax of the business enterprise operated in Germany.[45] As has already been stated, the typical silent partner participates in the commercial business of another by way of a capital contribution, which becomes his assets. Consequently, the commercial sector constitutes a business enterprise and is therefore a taxable person under business tax. [46] According to § 5 para. 1 sentence 1 GewStG, the entrepreneur is obliged to pay the trade tax. For this reason, it follows for the typical silent partnership that it is not obliged to draw up a business tax return and consequently not to pay the business tax, since the contribution is transferred to the assets of the business owner.
According to § 7 GewStG, the basis for the assessment of trade tax is business income and business capital.[47] As a rule, the business income represents the profit from the business operation determined in accordance with the provisions of the Income Tax Act. According to § 8 no. 1c GewStG, the profit shares of the silent partner in the commercial income of the commercial business owner are to be added to a quarter if the sum exceeds the amount of 100,000 euros. It is not only the profit share of the typical silent partner that must be taken into account in the business income, but also the loss share, provided that this has reduced the loss from business operations. [] 48]
Special features arise when the typical silent participation belongs to the operating assets. This may be the case if the silent partnership partner is a trader or as soon as the silent participation is granted within the framework of a business split.
3.2. Atypical silent society
3.2.1. Accounting treatment in the HGB balance sheet
The classification of the company as a typical or atypical silent partnership is not decisive for the accounting for the capital contribution of the silent partnership.[49] Basically, the tax assets of the atypical silent partnership are the business assets of the owner of the commercial trade, which are set out in the tax balance drawn up by the owner. In addition, the tax balance is derived from the trade balance. In the tax balance sheet, the silent partnership partner’s contribution is no longer shown – as in the trade balance – as a liability, but as tax equity capital. [50] The silent participation is always shown in the trade balance as a debt item and remuneration is therefore interest expense. [] 51]
Due to their special design through, for example, loss participation and subordination, atypical silent participations are usually the same as liable equity capital. Consequently, in such cases, the atypical silent participation must be shown on the liabilities side of the balance sheet drawn up according to HGB according to the subscribed capital. [] 52]
3.2.2. Tax accounting treatment
Opinions as to whether there can be a tax balance in an atypical silent society are different. As has already been stated, the silent partnership member’s contribution to the atypical silent partnership is transferred to the assets of the commercial owner; Thus, there is no operating assets of the atypical society that can be used as a basis for a comparison of assets. As a result, there is no trade balance, no tax assets, no tax balance and no tax comparison of the atypical silent partnership, but only an asset comparison and a profit or loss. Loss of the commercial owner in which the silent partner participates. [] 53
On the other hand, it is assumed that the equality of the atypical silent society as an internal society with the provision of § 15 para. 1 sentence 1 no. 2 EStG follows that the assets of the owner of the business are to be regarded as a company asset for tax purposes and the atypical silent partnership as an external company for tax purposes. As a result, the prerequisite for determining tax profits for the atypical silent partnership is the tax balance derived from the commercial balance of the commercial business owner as the tax balance of a foreign company. [] 54]
Today, however, due to the regulations and requirements of tax law, it is considered that in order to determine the earned profits and losses of the atypical silent partnership as well as the shareholders' shares in the earned profits and losses from the atypical silent partnership, a separate tax balance of the atypical silent partnership is required. [55] The independent tax balance of the atypical silent society is to be compiled as if the atypical silent society were an integrated company. [] 56
Furthermore, the financial authorities and the case-law stand for different views regarding the accounting and accounting obligations of the atypical silent partnership: The case-law is of the opinion that, in order to determine the total profit of the silent partnership, an independent tax balance sheet for the atypical silent partnership is necessary without a self-justification of an accounting obligation of the atypical silent partnership. The tax authority, on the other hand, in the absence of a total financial asset of the atypical silent partnership, denies this company its own accounting obligation and an independent tax balance sheet.
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Figure 2: Scheme for determining profits in the case of the atypical company using the example of GmbH & Still (Source: Kaminski, B.; Strunk, G. (2012), p. 30)
Figure 2 summarizes the profit determination. As mentioned above, the contribution of the atypical silent partnership is recorded as equity. Special assets exist when the silent partner leaves assets to the business owner. In addition, special operating expenses which are expenses related to the silent participation are cleared. The shareholder is treated for the calculation of the profit and loss share as if he had a joint interest in the company assets with the business owner, so that in the calculation the trade balance of the company can be used as a basis.[57] Here, a uniform and separate determination of the overall profit of the co-entrepreneurship is to be achieved. [] 58]
In principle, the atypical silent society is not an independent tax subject either. Taxable are only the individual co-entrepreneurs on whom the profit of the atypical silent society is distributed. The tax subject is therefore the person participating in the company as a co-entrepreneur or the corporation with the income, but not the atypical silent partner. On the other hand, the atypical silent society is the subject of profit determination, profit making and income qualification. [] 59]
From a tax point of view, too, there are important differences between typical and atypical silent partnerships: income from an atypical silent participation is income from business operations according to § 15 para. 1 No. 2 EStG. By contrast, a typical silent partnership is income from capital assets pursuant to § 20 para. 1 No. 4 EStG.
Overall, in the case of the atypical silent partnership, the question of whether a tax balance sheet is necessary is irrelevant, since both the profit of the business owner and the silent partner result from the business assets comparison according to § 5 EStG or § 4 para. 1 EStG. Provided that §§ 140, 141 of the Tax Code (AO) are fulfilled. [] 60]
3.2.3. Tax treatment: income tax
In terms of income tax treatment, the atypical silent society differs significantly from the typical silent society. The participation of the atypical silent partner is regarded as co-entrepreneurship as soon as the silent partner participates not only in the profit and loss, but also in the hidden reserves, in the goodwill and in the liquidation proceeds in the dissolution. Accordingly, the profit shares according to § 15 Abs. 1 no. 2 EStG Income from business operations and losses corresponding to losses from business operations. [61] Thus, the profit shares paid to the silent partner are not operating expenses. However, these are also not subject to capital gains tax.
In principle, the atypical silent partner is taxed, such as the shareholder of an open commercial company or limited partnership. In addition, the profit determination is determined uniformly and in a separate procedure and attributed to the silent partner and the business owner for income tax purposes. The legal form of the silent partner and that of the business owner is insignificant. The profits are divided according to the contractual arrangements and allocated to the individual shareholders.
For the atypical silent partner, a significant difference compared to the typical silent company is that the decisive factor for the taxation time is not the inflow, but the creation of the profit at the business owner. [62] First, when determining profits, it must be clarified whether the atypical silent partnership has a commercial or tax balance in addition to the business owner. As an internal company, the atypical silent partnership does not have to draw up a commercial balance sheet, since according to § 238 HGB the silent partnership is not a merchant and is therefore not liable for accounting and accounting under commercial law. Therefore, a commercial financial statement is only to be prepared by the business owner of the company, on which also its profit is to be determined.
At the first stage of profit determination, the operating assets that belong to the co-entrepreneurs are recorded. [63] In principle, the atypical silent society as an internal society does not possess any total hand-power. Since they are in accordance with § 15 Abs. 1 no. 2 EStG but refers to companies with total assets, the atypical silent partnership profit determination and accounting is worth discussing. [64] In addition to the business assets of the commercial owner, an operating assets of the silent partner must also be determined. [65] Basically, for the purpose of taxation, a tax balance of the atypical silent participation must be drawn up in which its contribution is recorded as equity. The expenses of the business owner to the silent partner are regarded under commercial law as operating expenses that reduce profits. However, these are added again under tax law, so that no operating expense deduction is made.
In principle, the total hand profit of the atypical silent partnership is determined on the basis of a derived tax balance of the business owner from the trade balance taking into account the relevantness. [66] In particular, §§ 4 to 7 EStG must be taken into account. In accordance with the profit distribution key laid down in the articles of association, the profit determined from the tax balance of the atypical silent partnership is to be divided between the atypical shareholder and the owner of the commercial trade. [] 67
Furthermore, the profit determination determines the results of the supplementary balance sheets of all co-entrepreneurs. In this context, the additional balance sheet shall record and update the excess amount arising at the time when the acquisition price of the silent participation is above the book value. In the course of this, the profit can be determined when the silent partnership is sold or dissolved. [] 68]
Supplementary balance sheets must also be prepared if personal tax benefits can only be used by individual co-contractors. [69] Accordingly, the profit share of the silent partner at the first stage of the profit determination consists of the profit or loss on the company balance sheet and the results from any supplementary balance sheets. However, as soon as the atypical silent partner is placed on an equal footing with a fellow entrepreneur, it is necessary to record the contractual obligations between the silent partner and commercial owner at the second profit determination stage. At this level, the special assets recorded in a special balance sheet are taken into account.
3.2.4. Tax treatment: business tax
In an atypical silent society, according to § 2 para. 1 GewStG the trade tax liability is only given if a trade is operated. [70] In principle, according to § 5 Abs. 1 sentence 1 GewStG the entrepreneur tax debtor and not the atypical silent party. Accordingly, the business owner is usually also the addressee of the trade tax measurement and trade tax notices. The atypical silent partner is not liable for business tax even if he is seen as a co-entrepreneur. However, as soon as the activity of a partnership is a commercial enterprise, according to § 5 para. 1 sentence 3 GewStG the atypical silent society itself as a tax debtor.
According to § 11 Abs. 1 Nr. 1 GewStG every company is entitled to the trade tax exemption of 24,500 euros at an atypical silent partnership.[71] This also applies if it is a GmbH & Still. The allowance can only be deducted once, although there are separate silent partnerships in the case of participation of several atypical silent partners. However, multiple consideration of the allowance is possible as soon as there are several atypical silent participations in separately managed businesses. [72] It is necessary to assess whether the commercial activities of the atypical silent partnerships are to be defined as a single entity or as separate activities and thus the trade tax allowance can be used several times.
Due to the lack of subjective business tax liability, the profit shares and the special remuneration of the atypical silent partner are not excluded from the objective tax liability. As already established according to § 2 Abs. 1 GewStG of every business enterprise is subject to trade tax, can be concluded from this that the law does not see the holder as the object of trade tax, but the business enterprise. Therefore, the atypical silent society is seen as an independent object of business management. [74] This also applies if the business tax assessment is addressed to the business owner. [75] As a result, in the case of the silent partnership, the co-entrepreneurs are objectively liable to trade tax as a company because there is a co-entrepreneurship in the form of an atypical participation. For this reason, the activity of the business owner is assigned to the atypical silent partnership partner for trade tax purposes and is therefore referred to as a business income of the atypical silent partnership. [] 76
3.3. withholding tax according to § 32d EStG
For companies especially corporations, the 2008 corporate tax reform brought extensive innovations. Thus, an interest rate barrier according to § 20 Abs. 1 no. 4 EStG introduced. If the silent participation is held in private assets, it follows that the income tax liability from 2009 onwards according to § 43 para. 5 EStG is usually covered by the capital gains tax deduction. [77]
As soon as the inclusion in the assessment is requested, the tax rate according to § 32d EStG, which amounts to 25 percent, comes into force in principle. Income attributed to the typical silent partner is then subject to § 20 para. 1 no. 4 EStG as income from capital assets, as soon as the latter holds its participation in private assets.[78] Here, the silent partner is obliged to tax them at the time of drawing up the balance sheet, since he can only dispose of them. In the event that no capital gains tax is withheld on the income of the silent participation, the income must be listed in the income tax return. Meanwhile, the withholding tax applies according to § 32d Abs. 1 EStG, which is at 25 percent. According to § 20 Abs. 9 sentence 1 EStG must be taken into account here that no advertising cost deduction, for example, of financing interest is possible.
As a rule, income from a typical silent participation is to be taken into account without the withholding tax if the creditors and the debtors are related persons. Furthermore, the tax rate does not apply if it is a silent participation in a corporation and the silent partner in accordance with § 32d para. 2 No. 1a EStG holds at least 10 percent in this corporation. [79] The special tax rate of 25 percent is also excluded if a third party owes the capital income, who in turn has transferred capital to a company of the typical silent partner. In these circumstances, the profit shares of the silent partner are subject to the general income tax rate. However, according to § 32d Abs. 2 No. 1 sentence 2 EStG neither the prohibition on the deduction of advertising costs nor the limited ability to compensate for losses.
3.4 Practical examples of the typical and atypical silent society
3.4.1. BFH judgment of 21. May 2014
In the area of trade tax, an important decision was made on 21.05.2014 for companies and silent partnerships. The starting point was as follows: A GmbH entered into a participation agreement with another company for the establishment of a typical silent partnership. The other company participated in the GmbH as a silent partner with a cash contribution and was to receive a fixed remuneration. Furthermore, the silent partner should receive a profit-related remuneration, which should account for 2.0 percent of the contribution, but at most the amount of the profit. In the event of a missing or low profit, the entitlement should increase accordingly in the next few years, and the silent partner should additionally receive a processing fee and a risk premium. [] 80]
The dispute arose between the GmbH and Finanzverwaltung as to which of these payments should be taken into account and added to the trade tax to the other company as profit shares of the silent partner. The Bundesfinanzhof (BFH) issued on 21. May 2014, the judgment that the profit shares of a silent partner must be added to the profit from a business operation in accordance with § 8 No. 3 GewStG, provided that these have been deducted from the profit and are not to be used by the recipient for tax on the business income. The addition of the silent partner’s profit shares does not presuppose any actual profit. On the other hand, minimum amounts which are to be paid to the silent partner in years of loss in the amount of a certain percentage of the capital contribution are recorded. In such a situation, the addition takes place because the minimum amount shows a fee for the provision of external capital and therefore the equal treatment with loan interest under trade tax law must be taken into account. [] 81]
3.4.2. Model contract of an atypical silent partnership
Essentially, the social contract of an atypical silent society corresponds to the model contract of a typical silent society, although they differ in a few points. The distinction between the typical silent partner and the atypical silent partner is important for assessing the type of income, the inflow of profits and the possibility of offsetting losses. This is shown, for example, by the fact that the typical silent partner receives the income from capital assets, while the atypical silent partner uses the income from business operations, since the atypical silent participation in a limited liability company establishes a co-entrepreneurship between the limited liability company and the atypical silent partner.
According to § 15a EStG, the tax offsetting of losses is limited for the atypical silent partnership partner, since he cannot claim losses beyond the level of his contribution. [82] Once the deposit is equal to or higher than the loss share, the entire loss share of a financial year is eligible for compensation. However, if the deposits are lower than the losses, the excess of the deposits falls below the compensation prohibition.
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Figure 3: Model contract of an atypical silent society (Source: Based on Schulze zur Wiesche, D. (2013), p. 234)
Figure 3 shows an excerpt of a contract of an atypical silent society. The differences between the contract of an atypical silent partnership and that of a typical silent partnership lie in the division or in the agreements in the area of management, profit and loss sharing and in the dispute or dispute credit. In the case of the atypical silent company, the variant can be agreed that the silent partner simultaneously becomes Managing Director of the GmbH, is granted procura for the GmbH or has the same right of objection as the limited partner. If, in the case of the typical silent partnership, agreements were concluded which indicate that the silent partner was a co-entrepreneur, the contract would indicate the existence of an atypical silent partnership, since the co-entrepreneurship is a clear characteristic of the atypical silent partnership. [] 83
In the case of profit and loss sharing agreements, it must be clarified in advance which withdrawals of the profit shares the silent partner is entitled to. Furthermore, it must be agreed whether the corporation must give its consent in the case of further withdrawals. For dispute purposes, the contract of the atypical silent partnership must specify in advance whether and how the silent partner will participate in the reserves determined.
3.5. Termination of silent society
The dissolution of the silent society – whether typical or atypical – is described in §§ 234 para. 2 and 235 HGB. When the silent partnership is dissolved, there is no liquidation, since this is a purely domestic company and there are only legal relationships between the owner of the commercial transaction and the silent partner. [84] On the contrary, liquidation is the responsibility of the owner of the commercial transaction. In principle, the commercial business continues to exist and the dissolution is not recorded in the commercial register, since the business operation is continued by the owner. [] 85
If an erroneous contract was concluded when a silent partnership was founded, it is not considered void from the outset. However, it is possible for both parties to detach themselves from the contract.
Frequent reasons for dissolution are the achievement of the agreed purpose, the expiration of a specified period of time and the termination.[86] The reasons for dissolution are set out in §§ 723 ff. BGB not exhaustively listed; Others can be agreed in the social contract. [] 87)
According to § 234 para. 1 HGB, the silent company is usually dissolved by the termination of the silent partner or the owner of the commercial business. Unless otherwise agreed, termination is possible with a six-month period at the end of the financial year. In addition, both parties have the right to claim an immediate termination for an important reason. Furthermore, there is the possibility of termination by a creditor of the silent partner after unsuccessful foreclosure into the assets of the silent partner. [] 88
According to §§ 726 ff. BGB also terminates the company if the agreed purpose has been achieved or its achievement has become impossible. In accordance with § 234 HGB, the silent company remains unaffected by the death of the silent partner and its heirs take the place of the silent partner. However, the silent society ends by the death of the owner of the trade.
According to § 235 para. 2 HGB the silent partner is to participate in the profit or loss from the transactions pending at the time of dissolution. However, the existing permanent debt relationships play no role here. In addition, subsequent findings can also become relevant for the assessment of the silent partner’s entitlements.
At the time of the dissolution of the silent partnership, the owner of the commercial business and the silent partner must deal. The silent partner has a right to his credit in the form of money. The owner of the commercial transaction must draw up a balance sheet in order to determine the final balance of the silent partner.[89] However, it is questionable whether and to what extent counterclaims of the owner of the commercial transaction can be offset.
Here the balance of the typical silent partner consists of his contribution and remaining profits. Therefore, only a profit balance sheet has to be established for the determination. On the other hand, the atypical silent partner is entitled to draw up a balance sheet for determining his dispute assets, since he is also involved in the hidden reserves. [90] However, it must first be assessed whether or not the atypical silent partner participates in the assets of the undertaking. If it is not, there are no special features in the determination of the dispute credit. However, if he participates in the property, he is entitled to a severance payment in the amount of his share of the property. If the balance from the silent partner’s deposit account acquires a negative value due to losses, there is no obligation for the silent partner to settle it again as soon as the silent partner in accordance with § 236 para. 2 HGB has paid the agreed deposit in full.
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Figure 4: Legal status of the silent partner in the event of insolvency of the owner (Source: Klunzinger, E. (2012), p. 144)
In addition, as can be seen in Figure 4, both the insolvency of the holder of the commercial transaction and the insolvency of the silent partner lead to the dissolution of the company. The pending transactions that exist during the dissolution are executed in accordance with § 235 Abs. 2 and 3 HGB completely settled by the owner of the commercial transaction. [91] According to § 236 para 1 HGB, in the event of insolvency of the owner of the commercial business, the silent partnership partner can assert his contribution as an insolvency claim as soon as it exceeds the amount of the loss share. According to § 236 Abs. 2 HGB, the holder has the obligation to compensate in the event of insolvency of the company insofar as the contribution has not been made. [92] An exception exists if the asset contribution is treated as equity capital under company or liability law.
Legal effects of the silent society
4.1. Rights and obligations of the business owner
The legal relationships in the silent partnership are governed first by the social contract, secondarily by §§ 230 ff. BGB.[93] As already mentioned, the prerequisites for a silent partnership are participation in the commercial activity of another, participation by means of an asset contribution, participation against profit participation and participation by means of conclusion of a contract of association. [] 94]
The basis for the company rights and obligations of the participants is the social contract. The silent society is founded by means of a form-free founding contract, which can also be justified by implied or conclusive behavior. The rights of the silent party are restricted; the management is exclusively the owner of the commercial business. This is according to §§ 709 ff. BGB is entitled and obliged to manage the company. This right belongs to him alone and cannot be withdrawn from him.
Substantial changes, divestments and the cessation of the commercial sector require the consent of the silent party. The silent partners are obliged by the contract to act for the achievement of the common goal in the manner determined by the contract and to make the agreed contributions. [95] In addition, the silent partnership partners are obliged under certain circumstances to participate in the loss and to conduct the business. The duty of fidelity arises from the personal rights ties. Concrete property rights can be derived from the creation of a shareholder, such as the right to pro rata profit, administrative rights such as the information and termination rights and the right to management.
In essence, the silent partnership does not affect the position of the owner in the undertaking; externally, he retains his freedom of disposal over the commercial business completely.[96] However, the silent partnership is not a commercial company, but a special case of the domestic company, which is not visible to the outside world, in which the rights and obligations of the silent party are limited to the internal relationship with the owner of the commercial trade. [] 97
The content and scope of the entire activities of the management may be limited by the social contract in the internal relationship by, for example, prohibiting certain types of business from the business owner or by making them equally dependent on the consent of the silent party. In addition, the managing director is obliged to the silent party in the internal relationship to accept and comply with these restrictions.
Basically, the business owner is not only entitled to work for the company, but also obligated to respect its interests. [98] The pursuit of own, non-company interests is forbidden to the management. Since the legal status of the silent party vis-à-vis the business owner is weak, particular emphasis is placed on compliance with the restrictions.
The essential foundations of the company should not be changed by the business owner without the consent of the silent partner, not even the legal form of the company, because they also refer to the foundations of the silent company.[99] Exceeding the business powers has a legal significance in the internal relationship and can lead to damages obligations of the business owner. According to § 712 BGB, a silent partner may be deprived of his right to management by a resolution of the other silent partners stating an important reason. [100] However, § 712 BGB is usually not applicable to the owner, because he alone is entitled to the management in a normal contract drafting. Even in the case of a commercial transaction, several silent partners may well be in a company relationship with the owner of the commercial transaction. However, the owner may not accept third parties as shareholders without the consent of the silent partner.[101] Accordingly, the owner may not restructure, expand or restrict the basis of the commercial business without the consent of his shareholder, since this may affect the interests of the silent partner with regard to the share of profits or profits. loss participation may be affected. [102]
However, if the holder of the commercial transaction has made unauthorised transactions, the silent partner need not have them asserted against him. On the other hand, the holder of the commercial transaction may use the silent partnership member’s contribution only for the purpose of the common purpose of the silent partnership and, in addition, may not unlawfully withdraw assets from the commercial transaction; Otherwise, he may be liable for damages against the silent partner.[103] According to § 280 BGB, the silent partner’s claims for damages are against the commercial business, not directly against him. On the other hand, the business owner has the right to compensation pursuant to §§ 670 and 713 BGB. In contrast, in the case of an atypical silent society, he also has a right to loss compensation in accordance with § 110 HGB. The holder shall also be accountable to the silent party; In addition, he is subject to proof for losses.[104]
In addition, there is a duty of contribution of the business owner. The contribution to the promotion of the common purpose entails that the holder in future conducts his own commercial business on common account. However, this does not exclude that the business owner undertakes to make a further contribution in the articles of association. This can consist – like the contribution of the silent partner – in cash or in kind, in services or assignments of use. [105]
Even after an unauthorized cessation of the ongoing business, the owner is liable to the silent party for damages. The silent partner is usually not harmed if the owner terminates the company without notice in the event of permanent unprofitability of the company. Similarly, the business owner is obliged to compensate the silent party if he intentionally or grossly negligently violates other obligations under the articles of association. Furthermore, according to §§ 272 and 708 BGB, the owner of the commercial business owes the care as in his own affairs.[106] If the whole thing takes place in the legal form of the GmbH, § 43 para. 1 GmbHG, since here in the case of managing director liability there is a protective effect in favour of the silent partner as at GmbH & Co. KG. [107]
In the event of a sale of the commercial business, an automatic continuation of the operation is not directly given. This requires a separate transfer of shareholder status for the new company owner. This is possible, for example, through a tripartite contract between old and new entrepreneurs and the consent of the silent partner. The new owner does not enter into the position of the seller despite the takeover of the business if there is a lack of the necessary consent of the silent partner or the acquirer to continue the company relationship. [108]
Furthermore, the business owner is liable according to §§ 277, 708 BGB "default criterion" for the breach of his duties in management.[109] In principle, a change of shareholder in an open commercial company or limited partnership does not cause the silent partnership to be dissolved, since the identity remains present even in the event of a change of shareholder. However, the silent partner has the opportunity to exercise his extraordinary right of termination if a further continuation of the silent partnership by the change of shareholder is unacceptable, for example if an uncreditworthy or untrustworthy shareholder continues the cooperation. In contrast, in the case of a corporation, the silent partnership remains unaffected by the change and an extraordinary right of termination is usually not considered.[110] Rather, the silent partner can terminate the company relationship properly.
In addition, the business owner is also bound by fiduciary duty in relation to the silent partner. [111] There should be a mutual relationship of trust between the partners, because without the principle of good faith, neither cooperation nor the realisation of the common purpose is possible. In principle, it is not possible to define the limits of fiduciary duties or breaches of duty, but only in individual cases. As a result of fiduciary duty, the holder of the commercial transaction is obliged to refrain from doing anything that could jeopardize the common purpose and to do everything possible to promote the common purpose. An obligation of the parties under the duty of fidelity may be, for example, the secrecy of the existence of the silent society towards third parties. [112]
In principle, the holder of the commercial transaction has no right to remuneration for his activity. Basically, he can have the means of the commercial business at will and also make withdrawals. The extent to which he receives or has to bear profit and loss shares is to be regulated according to §§ 231 and 232 HGB mainly by a social contract. [113]
Restrictions of competition are also important between the business owner and the silent partner. The legal relations and competitive relations of the participants can be regulated in advance in detail in the articles of association. According to § 112 Abs. 1 HGB, the shareholder without the consent of the other shareholders may neither do business in the commercial sector of the company nor participate in another similar commercial company as personally liable shareholder. If a shareholder disregards the restriction of competition, the injured party may in accordance with § 113 para. 1 HGB demand damages and also insist that the infringer makes the transactions made for his own account deemed to be for the account of the company and issues the remuneration received from transactions on behalf of third parties or assigns his right to the remuneration. This also applies to the members of a limited partnership who are personally liable; Accordingly, the law of the silent society does not contain such rules, as there is a regular lack of close personal relations between the parties involved. This does not mean, but does not mean, that the business owner can engage in competitive business without hindrance, because the barriers of competition arise from the duty of fidelity.[114] In addition, it is permissible to introduce penalties for breach of duty. However, according to § 1 GWB, the functional necessity of the restrictions on competition must be considered.
With regard to the atypical silent company, it may be agreed between the silent party and the business owner that certain legal transactions may be carried out only with the consent of the silent party. Such consent reservations are common for all transactions that go beyond normal business operations. The reservations of consent are contemplated in particular for transactions which are contrary to the object of the company or no longer correspond in nature and extent to the ordinary business of the company or to what is commercial in comparable enterprises. If such a reservation of consent exists, however, the business owner can act in an external relationship without restriction; However, he shall be liable for damages to the silent party if he disregards the reservation. [115]
In the case of a typical silent partnership, the management is governed solely by the owner of the commercial business, who conducts the business in his own name for joint account. The managerial power of the business owner also does not change the power of attorney or procura granted to the silent partner in the context of an employment or service relationship. According to § 230 Abs. 2 HGB is liable for the liabilities of the company solely by the business owners, but not by the silent partner. The reason for this is that, after opening insolvency proceedings, the silent partner can reclaim his contribution as an insolvency creditor. [116]
4.2 Rights and obligations of the silent partner
The foundations of the silent society are regulated in §§ 230 ff. A silent partnership exists on the condition of a contractual merger of a merchant and a silent partner. Thus, like any company, the silent partnership constitutes a contractual association of several persons.
In principle, a silent partner can be any natural or legal person or be any community endowed with legal personality, as well as the non-merchant, the person trading company or the company civil law (GbR). All in all, the silent company arises through the conclusion of a social contract.[117] According to §§ 1 to 6 HGB, however, in the case of the silent company, one of the participants or Parties are a merchant.[118] This does not necessarily have to be a natural person, because the legal form of the parties is insignificant.[119]
Unless otherwise agreed in the social contract, the silent partner does not participate in the management. Its approval requires only business decisions concerning the basis of the commercial transaction, unless other agreements have been made.[120] The silent partner is also not entitled to the rights of the limited partner in § 164 HGB to object to acts.[121]
In principle, the silent partner has to make his investment in the commercial business of the owner. Additional performance obligations may result from the contract or from the fiduciary duty. In doing so, the silent partner has no rights to the assets and only little non-property rights.[122] Because no total assets are created by the silent company, the silent partner has no total real rights to the assets of the commercial trade.[123] Accordingly, the business owner is liable solely to the business creditors with his entire assets.
According to § 230 HGB, the contribution of the silent partner is transferred to the assets of the business owner; in return, he receives a share of the profit, also called the profit share right. However, the profit participation according to § 231 Abs. 2 HGB cannot be excluded by contract in comparison with the loss participation. The law does not require a certain amount of profit participation, but only an appropriate share of it. All in all, this means that without a participation in the profit there is no silent company according to §§ 230 ff.
In addition, the silent party is in accordance with § 232 para. 2 HGB is not obliged to supplement its contribution reduced by losses, but may only receive the profits after the replenishment of the contribution. It follows that the silent partner has no right of withdrawal, but according to § 232 para. 1 HGB can demand the payment of its profit share, which is calculated at the end of each financial year. Through his participation, however, the silent participant does not become a merchant, since he is neither registered in the commercial register (exception: participation in a public limited company) nor appears externally.[124] Its rights and obligations are mainly limited to the internal relationship with the owner of the trade. It is quite possible to conclude a contractual agreement which allows the silent party the right and the obligation to manage, which is within the scope of the owner’s management. In addition, the silent party has no organic management authority or power of representation.[125]
The most important obligation of the silent partner is the obligation to contribute. If this is provided, no further services can be demanded from him – unless otherwise agreed in the articles of association. In addition, he is not obliged under § 707 BGB to increase the agreed contributions.
In particular, the silent partner must promote the common purpose by making a contribution. Thus, the silent partner also has an obligation to support through contributions. This deposit can be made exclusively in the assets of the business owner. Therefore, no company assets are formed.
According to § 233 HGB, the silent partner also has information and control rights. He or she may request the written communication of the annual accounts by means of the right of inspection and check the accuracy of the accounts by inspection of the books and papers. The silent partner is entitled to control rights only personally. These rights can be subdivided into the ordinary right of information of breastfeeding according to § 233 para. 1 HGB and the extraordinary right to information of breastfeeding according to § 233 para. 3 HGB. The ordinary right of information includes the entitlement of the silent partner to demand the balance sheet as well as the profit and loss account and check its correctness by viewing the books and papers. On the other hand, audit reports and interim financial statements are not to be communicated, but access to the documents must be guaranteed to a limited extent. Furthermore, in individual cases, the time, place and manner of access are determined by the duty of fidelity, and the silent party cannot regularly request the documents to be taken or sent. [126] In addition to profit sharing, this right of control guarantees a minimum degree of similarity to equity capital.[127]
Furthermore, §§ 242, 810 BGB may also provide information rights for the silent partner. He has an extraordinary right to information if he can provide important reasons. By means of an application, the court can at any time notify the annual accounts as well as the presentation of books and papers in accordance with § 233 para. 3 HGB. Important reasons can be a legitimate mistrust of the management or the refusal of book access without comprehensible reasons. This right is mandatory and cannot be excluded in the social contract. [129]
In addition, the silent partner should be able to exercise his rights, in particular the right to extraordinary termination, in a timely manner through the information and control rights.[130] Only in this way can the security of the contribution made be guaranteed. All in all, these control rights are intended to ensure that the managing director of the company acts in the common interest.
Like the business owner, the silent participant is also bound to loyalty. The duties of fidelity include, in particular, the duty to preserve trade secrets, to take account of the common interests and not to act to the detriment of society. Information rights extended in accordance with the social contract can also lead to increased loyalty obligations.[131] The silent partner is obliged to pay damages if he grossly neglects his duty of fidelity by arbitrary refusal of his consent to necessary measures of the management. [132]
According to §§ 128, 171 HGB, the atypical silent partner is not solely liable for the liabilities of the owner of the commercial business, even if he is treated as a limited partner in terms of his rights and obligations in the articles of association. Only the internal relationship of society is affected. Such external liability requires a special reason for liability going beyond that.[133] According to § 230 Abs. 2 HGB, the silent partner is not entitled or obliged by the legal transactions of the business owner, but only the owner of the commercial transaction. Since the silent partner has contractually undertaken to contribute, the creditors of the commercial transaction can only access the arrears by way of attachment and involvement the claim against the silent partner.[134]
The typical silent partner is not subject to any general prohibition of competition. The reason for this is that he does not participate in the management and is equal to the limited partner, for whom there is no prohibition of competition according to § 165 HGB. Thus, the typical silent partner can participate in as many companies as he would like, without violating the non-compete clause. On the other hand, the non-compete clause can apply to the atypical silent partner with management powers, since he participates in the management or It has an impact on it. Here, he also has the obligation to abstain from competitors who damage the purpose of the company.[135]
In summary, the silent partner does not have to repay anything even in years of loss according to statutory regulations and does not even have to repay earnings received. It is only necessary for it to pay an arrears deposit at the level at which its loss share must be covered.
Economic Effects of Quiet Society
5.1. Motives for the choice of silent society
The motives for building a silent society are many. Tax and legal considerations, but also economic aspects, play an important role. In practice, financing issues in particular often lead to the choice of this legal form.
For the silent partner, the demand for a favorable investment, which promises security by the owner of the commercial business and brings a greater return than bank interest or share dividends, will be decisive for the takeover of a silent participation. Furthermore, if the lender is interested in a property security, it can be agreed in the articles of association that his participation should not be limited to the current annual profit, but should also include the fixed assets, the open and hidden reserves and any goodwill.
The choice of the silent partnership is also often determined by the concern to keep the capital investment secret from the public, to take a small risk and either not to participate in the loss of the business or to limit the risk of loss to the amount of the capital contribution.[136] These claims cannot always be realized in the form of a corporation, a commercial partnership or a debt-related loan agreement.
In particular, the silent partnership partner's capital contribution makes use of the long-term financing of the main company.[137] However, a silent participation can also be an attractive form of investment for investors. As mentioned, the most common motive is the desire to keep the silent partner’s capital investment secret from the public. After all, silent participation is a purely domestic society that does not appear to the outside world.[138] For this reason, this form of participation allows participation in competing companies of business partners without this becoming known.[139]
From the silent partner’s point of view, the silent participation is an investment option that offers an alternative to conventional investments such as fixed-interest loans, bonds or shares. The interest rate is regularly higher than with a fixed-rate loan, but the risk is also higher. In addition, the silent party’s rights of participation can be flexibly and unbureaucratically adapted to the needs of the individual case. Compared to open participations, silent partnership contributions constitute debt capital which must be satisfied in the event of insolvency.[140] On the other hand, the silent company has some advantages from the point of view of the business owner: the business owner can spend a long time with the capital contribution of the silent participant without having to worry that it will be terminated at short notice.[141] By transferring profits to the silent partner, who is also a full shareholder of the business of the business owner, the commercial income statement can be reduced without it being visible to others in the annual accounts. This also circumvents the insight of a too good annual result towards the suppliers and customers.
Particularly important for newly created companies is the capital service to be provided in the event of a profit, because it does not require recourse to the asset substance in periods of loss to raise the financing costs. [142]
Silent participations in individual business units give medium-sized companies the opportunity to finance certain projects and innovations.[143] One advantage of these so-called tracking stocks for the silent party is that the entrepreneurial risk is limited to a manageable business line of a company; In addition, the profit prospects are not jeopardized by other loss-making branches of companies.[144] As a result, the holder gains greater investment security and thereby improves his position in the money-raising market.
Nevertheless, the desire for a safe investment is not the only motive for the choice of silent participation. Rather, it also has advantages in terms of restrictions imposed by competition or professional restrictions.[145] This type of participation is used precisely when certain contracts are intended to prevent participation in competing companies or companies whose shareholders must prove certain qualifications.
Another reason for using the silent society for companies is the possibility of shaping company and asset succession. This is because the silent participation serves as a precaution for the death of the business owner and can prevent an imminent risk of over-alienation due to the fragmentation of shareholding in family companies.[146] In addition, in the case of family businesses, the granting of a silent participation serves as a severance payment or compensation for the family members not intended as successors to the company.[147] Thus, the silent society of the family maintains the economic foundations of the company and the continuation of the company in the event of the death of the business owner is guaranteed. [148]
The use of the silent society is also useful if the descendants of the business owner are not yet able to run the company due to age or lack of education, or the owner wants to leave the participation rights of his family members low. In addition, the silent partnership offers itself if the outgoing owner (senior) wants to keep capital shares in the company.[149] All in all, the silent partnership is attractive as an instrument for company succession planning and offers interesting aspects such as profit dependence of interest rates, flexible designability of participation rights and exclusion of liability.
Silent participation is also of great importance in terms of employment contracts. It is often used as a form of employee participation.[150] The silent participation serves the motivation and the internal and external bond of the employee to the employer; At the same time, the information and control rights of the employee can be limited by a corresponding contractual arrangement. [151] In addition, this can increase productivity and trigger more cost-oriented thinking and action from the participating employee.
Overall, there are many reasons to reconcile a silent society. The decisive factors are usually the economic reasons.[152]
5.2 Silent Society as a Financial Instrument
The silent society can also be understood as a financing instrument, because it meets certain criteria of mezzanine financing. The term ‘mezzanine’ is derived from the Italian word ‘mezzanino’; This means intermediate floor in the middle of two main floors of a building.[153] Mezzanine financing is therefore – analogous to architecture – a hybrid type of financing, which must be classified between pure equity and debt capital. [154] A form close to equity is called an equity mezzanine and a type close to debt is called a debt mezzanine.[155] The forms option bond, convertible bond, profit participation certificate and atypical silent participation belong to the group Equity Mezzanine; the seller loans, subordinated loans, shareholder loans and the typical silent participation belong to the group Debt Mezzanine. [156]
Apart from the profit-sharing of the silent partnership (as an essential component of a silent partnership), the regularly paid additional fixed interest rate at the typical silent partnership and the variable interest rate at the atypical silent partnership, the silent partner as a mezzanine investor is provided with a so-called kicker, which, according to the circumstances, is intended to cover a substantial part of the expected return of the mezzanine capital.[157] A kicker is either a pre-determined equity interest (equity kicker) or a non-equity kicker (non-equity kicker) in repayments of the capital. [158]
The kicker offers the mezzanine investor the opportunity to participate in the value creation potential, in particular the hidden reserves and the business value of the company to be financed at a certain time or time period.[159] The relief over the duration of the current payments, which the agreed kicker offers, is an advantage for the company to be financed. The majority of the compensation of the mezzanine investor is postponed by the kicker to the end of the term, the so-called exit of the investor.
Mezzanine capital is subordinated because mezzanine investors are subordinated to normal debtors in the event of insolvency. For this reason, the silent society is economically own capital.[160] On the other hand, there is the advantage that investors receive a success-dependent higher return (interest kicker). [161] In addition, an additional margin is added to the atypical silent participation (Equity Kicker). [162]
The mezzanine capital with debt orientation (senior mezzanine) is awarded in the form of the typical silent participation. The focus of this form is a fixed, variable and performance-dependent interest rate structure, which can be designed either as a regular interest payment (cash settlement) or as a final interest payment (roll-up or redemption). [163]
The mezzanine capital is tax deductible and is provided for a limited period. Therefore, the remuneration paid for the provision of the mezzanine capital reduces interest on debt by analogy, as opposed to the dividends payable on equity, which are payable on the taxed profit. In addition, they reduce the tax profit or the tax base for income or corporate tax. In addition, mezzanine investors do not require collateral; In addition, the contractual relationships between the company and the investors can be made flexible. [164] It must therefore be noted that the silent participation mainly serves as a financing instrument for undertakings for investment purposes or for repayment of old liabilities. [165]
Another form of silent partnership as a financing instrument is the organisational form of venture capital, which belongs to the upper category of private equity. Venture capital, also known as venture capital, is a temporary investment in young, unlisted companies. The collaborating undertaking is referred to as a portfolio undertaking. Venture capital is provided as equity or as equity-like funds. Through this form of organization, the silent partner does not become another participant in the company, but obtains the rights of the portfolio company without affecting the rights of the other shareholders. The capital investment can enter the share capital informally. The atypical silent participation, on the other hand, expresses the co-entrepreneurship by the fact that further expenses are incurred by bearing the proportionate business tax.[167]
In addition, the venture capital company participates as a real co-entrepreneur in the hidden reserves of the portfolio company. 20% of all venture capital financing is combined with a silent participation; The donors participate as atypical silent partners in order to maintain their influence in the company. [168]
5.3 Participation in earnings, assets and hidden reserves
Silent societies are either loan-like (typical silent participation) or socially-like (atypical silent participation). [169] In the case of a silent partnership, there is a desired social participation of the silent partner in the commercial trade of another. For this purpose, a contract for the establishment of a silent society is concluded between both parties in pursuit of a common goal. In addition, the silent partnership participant undertakes to make a capital contribution in kind or in cash to the undertaking, which will be transferred to the entrepreneur’s assets; Thus, no separate company assets are formed. Accordingly, the silent partner does not receive any real rights in respect of this property. The claims of the silent partnership on the company assets are therefore only of a debt-law nature; Therefore, the owner alone can dispose of the property.
According to § 231 para. 2 HGB, the participation of the silent partner in the profit is necessary for the establishment of a silent company. A lack of the profit-sharing scheme does not lead to the invalidity of the transaction, but only to the fact that it is not a silent partnership, since a decisive defining feature does not exist.
In comparison, loss-sharing is not a characteristic of silent society. The loss participation is also not a suitable delimitation criterion between typical and atypical silent participation, because according to § 231 para. 2 HGB the exclusion of a loss participation in the articles of association is excluded. The same applies to the practically considerable tax distinction between typical and atypical silent society.[170]
A characteristic of the atypical silent participation is that the atypical silent participation is regarded as the holder in the determination of the profit and loss shareholding and is therefore held in the same proportion in the company assets. The company’s trade balance is usually used as the basis for the calculation.
Furthermore, on the basis of debt law, the silent partnership is entitled to a real participation in the company's assets and hidden reserves.[171] This investment is usually made via an equity kicker. Thus, the silent partner can cover a substantial part of his expected return. In addition to the kicker and the statutory profit share, a variable interest fee is regularly agreed.[172] As mentioned, the typical silent partner has a legal right to share in the profit. §§ 230 to 236 HGB represent the basic features of the contract form of the typical silent partnership. The typical silent participation is the so-called quasi-capital, since this form of participation rather corresponds to a loan.[173] In contrast to the atypical silent partner, the shareholding entitlement is calculated only from the ordinary operating result.[174] In addition, the typical silent partner receives a fixed term-related interest fee. For the most part or even completely, a loss participation can be excluded. The share of losses shall be limited to the amount of the shareholder’s contribution, unless previously excluded.
Since the typical silent participant only participates in the profit or Loss and does not participate in the assets and hidden reserves, he may have only a right to his capital contribution reduced by losses when the typical silent society is dissolved.[175] In the event of insolvency, the typical silent party is on an equal footing with its contribution vis-à-vis other, but not senior, creditors. Furthermore, in the event of liquidation, he has the right to a nominal amount of his contribution.[176]
5.4 Economic significance of the silent society
If an existing company has a financing need, this can be covered by the contribution of the silent partnership. In principle, the silent partnership constitutes the participation of an investor in an undertaking by means of a contribution of assets in the form of funds. The investor then regularly participates in the profits and losses of the financed company with his contribution.[177] The contribution thus represents equity and can improve the liquidity and capital structure of the company. This form of financing, on the other hand, seems to be a motive for a silent partnership exclusively for small and medium-sized enterprises. In contrast, large companies with access to the institutionalized capital market can generally meet their financial needs more easily and cost-effectively.[178]
The prerequisite for a company to attract investors for a typical or atypical silent participation is a viable and convincing entrepreneurial concept. When drawing on the silent participation, investors attach particular importance to a functioning, non-loss-making business operation with a positive operating result. Their interest is in developing, expanding and, where possible, making business operations even more profitable.[179] From the point of view of the silent partner, the highest priority is the interest in an investment that guarantees him a return above the existing interest rate without exposing him to the specific risks of a shareholder of a foreign company. [180]
However, the importance of silent society has changed in recent years. Indeed, it is becoming more and more widespread as a financing instrument on the grey capital market by being used more often as a tax saving model or as a pension scheme. Nevertheless, most silent shareholders are not aware of the risks that can arise: they put their money and thus all profit opportunities in the hands of an unknown Managing Director, whose entrepreneurial skills cannot be assessed. [181]
In addition, the possible circumvention of existing legal restrictions for a direct participation in a commercial company plays a role in the silent participation as in other indirect holdings. As a result, the entrepreneur often obtains a more favorable asset situation, in contrast to the fixed costs for the interest on debt capital, which is not cancellable at short notice and also allows the use of tax advantages.
Last but not least, the silent participation is suitable for the financial protection of family members of a company as well as the continuation of the company in the event of the entrepreneur’s death (anticipated succession). Furthermore, the silent partnership serves to involve employees and other employees, to provide liquidity in the event of restructuring, to temporarily involve a new limited partner until his entry in the commercial register and to convert the shares of retired members into silent partnership contributions as remaining claims for severance payments. [182]
The economic importance of silent participations will increase for companies in the future. Nowadays, many companies cannot achieve their goals through classic loan financing alone. Established medium-sized companies also have to deal with changing lending behaviour. Young companies, which are usually represented in the legal form of the GmbH or AG, are also often financed by contributions from venture capital donors and silent participations, since conventional collateral cannot be provided. Therefore, companies are now increasingly advised to enter into silent participations in order to improve their equity base. [183]
6th Conclusion
In relation to the silent society, a distinction must be made between the typical and the atypical silent society. In the typical silent partnership, the shareholder participates in profit and possibly also in loss, but not in the company assets, i.e. in the hidden reserves. Accordingly, the income of the silent partner is income from capital assets and he has no function as a co-entrepreneur. The atypical silent partner, on the other hand, is a co-entrepreneur and thus generates income from commercial operations. The co-entrepreneurship is justified by the fact that the atypical silent partner participates not only in profit and loss, but also in the hidden reserves, management and goodwill.[184]
The importance of the silent society has increased enormously in recent years. It is becoming increasingly popular precisely because it combines the advantages of a shareholding in a corporation with those in a partnership, both for the participant and for the company. The silent society is often claimed by medium-sized companies in particular because of its discretion, formless construction and extensive freedom of design.[185] For the companies, the advantages lie mainly in the flexible drafting of contracts, since this allows the position of the silent partner to be adapted more to that of an investor without co-determination rights or a sole managing director with his full rights and obligations. In addition, the silent society can be used by any form of society. For many companies, discretion or Anonymity of society is particularly advantageous, since it must be communicated only to the Treasury. The silent society is ideally suited to retain employees and can therefore increase their motivation.[186] In addition, the silent participation can bind important business partners or suppliers to the company. In this context, it should be considered beforehand whether the typical or atypical silent society is used. The typical silent society allows the employee involved to obtain limited control and information rights.
Again, the companies or the company owner have many reasons to enter into a silent society. In principle, he intends to work on the silent partnership partner’s capital contribution in the longer term. Because of a silent participation, the fixed costs for the borrowing interest are eliminated and the liquidity of the company increases. In addition, the silent participation has a positive impact on the owner of the commercial sector if the silent partnership also participates in the loss, since the loss leads to a return.
Above all, the tax classification as a typical or atypical silent company has for companies or Corporations are of great importance. The silent society offers considerable tax advantages. For a corporation, for example the GmbH, the contribution of the typical silent partnership is external capital, which is treated similarly for tax purposes as a loan. The silent partnership itself is not liable to corporate tax. The limited liability company can deduct the profit-related interest paid as operating expenses from the corporate tax. As a general rule, the profit shares in the marketing year incurred are to be recorded as operating expenses. The capital gains tax is to be retained from the profit share of the silent partner, unless there is an exemption mandate.
Furthermore, the profit shares of the silent partner are subject to income tax as income from capital assets as soon as they are held from private assets. These incomes from capital assets are generally subject to the withholding tax of 25 percent. The advertising costs are not to be deducted. However, the withholding tax according to § 32d Abs. 2 no. 1 EStG are excluded. Accordingly, the deduction of advertising costs is again possible. The atypical silent partnership has the advantage for trade tax that it is granted the allowance of 24,500 euros. In addition, the atypical silent partnership partner is entitled as a co-entrepreneur to charge the share trade tax in accordance with § 35 EStG in a flat-rate manner against his income tax. In addition, the profit and loss shares of the silent partner must be calculated on the basis of the business tax of the limited liability company. [187]
The silent society often produces a higher return for investors than other conventional investment opportunities. The most advantageous can be the atypical silent society, which, however, involves a greater risk through the loss-sharing.
The choice of atypical silent society is also attractive for companies. Because by accounting according to the HGB in equity, the balance sheet picture can be improved. The main application of the silent society is mezzanine financing, since the design of the silent society is very flexible and there are only a few legal requirements. The silent participation as mezzanine financing closes the gap between pure equity and debt financing. Depending on the agreement in the articles of association, the silent participation may have more characteristics similar to equity or debt capital. In particular, companies can raise capital for growth financing without granting participation to the shareholder, with the exception of the atypical silent partnership. In addition, the reliance on banks is reduced by the use of other sources of financing.
The typical silent party participates in the profit and, depending on the agreement, also in the loss. The assets of the company remain untouched. Thus, the typical silent society is based mainly on external capital. On the other hand, the atypical silent partnership is granted property rights, for which the participation in losses is obligatory. In addition, the atypical silent partner also participates in the fixed assets and hidden reserves. It also gains control and participation rights. However, there is no risk of liability for the silent partner vis-à-vis third parties. On the other hand, the liability towards the owner of the commercial trade is limited. Due to this co-entrepreneurship, the capital of the silent company is included in the balance sheet of equity. The silent company ultimately gains more and more importance as a public, mass or investment company, especially in the form of a GmbH & Still.
In summary, the silent partnership in its various variations is beneficial for corporations from a tax, legal and economic point of view. The type of silent partnership chosen thus depends on the benefit the corporation would like to derive from the silent partnership. Since the silent society offers many advantages, it can be assumed that companies will also fall back on the silent society in the future.
This article does not replace tax or legal advice in an individual case. Facts, current law, jurisdiction, documentation and implementation remain decisive.