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: Accounting / Legal / Economical

05. May 2020 | Silent Society: The drafting of the contract and the social contract (this contribution)

The silent society is – in different forms – part of many tax and economic design models. In order to achieve the objectives, the implementation of such design models must pay particular attention to the drafting of the social contract. In particular, the fundamental differences between the two types of silent participations (typical/atypical) are governed by the social contract and must be influenced individually in one direction or another by a corresponding design of the same.

In the video we explain the differences between a typical and an atypical silent participation and when which form is suitable for you.

Civil law foundations of the silent society

In a silent society within the meaning of § 230 ff. HGB makes an economic contribution by a silent partner to the commercial business of another. In addition, this civil law constitutes a company under civil law (GbR). Accordingly, in addition to §§ 230 ff. HGB, §§ 705 ff. BGB also apply. However, the majority of these legal norms are not mandatory, so that the contracting parties can individually make different provisions in a social contract.

The social contract of the silent society is usually not in need of form. In principle, therefore, a simple written or even oral contract conclusion is possible. However, if the silent partner’s contribution to the owner’s company consists of a land plot or a share in GmbH’s business, the articles of association are, for this reason, subject to notarisation (cf. § 311 (1) S. 1 BGB or § 15 (4) GmbHG). In any case, in practice, for reasons of legal certainty, a written social contract must be advised.

2. The silent partner’s participation

2.1. Economic participation

According to the legal conception of the silent partnership, the silent partner – in return for the contribution in its company – is involved in the profits and losses by the owner of the company. The profit and loss share of the silent partner should be explicitly specified in the articles of association. In practice, the silent partner's share is very often made dependent on the value of the contribution to the value of the undertaking. However, the contracting parties are largely free to determine the share. The participation of the silent partner in the profits of the company is an essential feature of the silent partnership. The profit share can be determined and restricted individually, but not completely excluded. In this context, it should be noted that a fixed interest on the contribution alone does not constitute a participation of the silent partner in the company’s profits. In contrast to profit, however, the silent partner’s participation in the loss can be completely contractually excluded.

The participation of the silent partner in the assets of the company in the case of the dispute of the silent company is one of the creative adjustments to the so-called atypical silent society. If the silent partner, contrary to the legal conception, also participates in the hidden reserves and the company’s goodwill in addition to the profit, this leads to a qualification under company law as an atypically silent company. In this context, it is also possible to agree on a participation of the silent partner in the loss of the company beyond the contribution obligation. In principle, the higher the participation of the silent partner in the loss and above all in the hidden reserves / the goodwill of the commercial sector, the more risk the silent partner bears in terms of tax law.

2.2 Social participation

Within the framework of the legal starting model of the (typically) silent company, the owner continues his trade independently. In the internal relationship, he is bound by the agreements with the silent partner. In order to be able to check compliance with the agreements, the silent partner is entitled to the control rights of § 233 HGB. According to § 233 para 1 HGB, the silent partner is in particular entitled to check the accuracy of the annual accounts by consulting the company’s books and papers.

However, since the possibilities of control based on law are very limited, it is quite possible and common in practice to grant the silent partner further rights by means of the social contract. These additional rights can range from approval requirements for certain transactions, to the extension of control rights, to a management authority of the silent partner for the commercial enterprise. If the legal form of the company does not permit external management, an independent representative authority of the silent partner (e.g. Prokura) can be used. In parallel with the adjustments to the social contract with regard to the economic participation of the silent partner, it also applies in this case that greater co-determination and control rights of the silent partner lead to a larger joint entrepreneurial initiative in the sense of tax law. The social contractual adjustments thus once again lead to an assessment as an atypically silent society.

The HGB also provides for certain legal consequences with regard to the death of the shareholders. While the death of the entrepreneur is to result in the dissolution of the silent partnership, this does not apply to the death of the silent partner (cf. § 234 para 2 HGB). If the silent partner is inherited by several persons, in contrast to other partnerships, the community of heirs enters directly into the silent society. In these cases, the dispute between the community of heirs must be coordinated with the company in view of the silent society. However, like most other legal provisions concerning the silent society, the legal consequences of the death can also be agreed differently. Thus, both the continuation of the silent company at the death of the entrepreneur and the termination of the silent company due to the death of the silent partner is conceivable.

4. Transferability of shareholders

With the consent of the business owner, the silent partner is able to dispose of his shareholder position (in the silent company) as a whole. This makes it possible to sell participation in the silent partnership to third parties. The owner can also declare the consent to the transfer as a precautionary measure in the social contract. The consent can be limited to certain individually agreed persons / groups of persons.

Other contractual arrangements in the silent society

Incidentally, various other constellations can (and usually should) be regulated by contract. These include, for example, special withdrawal rights of shareholders, remuneration for work services, possible non-compete clauses and, above all, the dismissal regulations. As with all articles of association, the same applies to the silent partnership that articles of association can offer the greatest possible legal certainty only insofar as they are adapted to the particular circumstances of the individual case. Our experts in company law are happy to advise you for this purpose.