The Silent Partner Agreement is essential for businesses in Australia seeking to formalize arrangements with investors who wish to maintain a passive role while contributing capital. This document is particularly relevant when establishing business partnerships where one or more partners prefer to remain uninvolved in daily operations while sharing in the profits and losses. The agreement must comply with Australian partnership laws, including relevant state Partnership Acts and federal legislation. It typically includes detailed provisions for capital contributions, profit distribution, management rights, confidentiality, reporting requirements, and exit strategies. The Silent Partner Agreement is commonly used in various business contexts, from startups seeking initial funding to established businesses looking to expand with additional capital investment, while ensuring the silent partner's limited liability and confidentiality are maintained.
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1. Parties: Identifies the active partner(s) and silent partner, including full legal names and addresses
2. Background: Outlines the context of the agreement, including the business purpose and intention to form a silent partnership
3. Definitions: Defines key terms used throughout the agreement
4. Partnership Structure: Details the nature of the silent partnership, confirming the silent partner's non-involvement in management
5. Capital Contributions: Specifies initial and any ongoing capital contributions from all partners
6. Profit and Loss Sharing: Details the agreed split of profits and losses between partners
7. Management and Control: Clarifies that active partner(s) have exclusive management rights and decision-making authority
8. Confidentiality: Establishes the confidential nature of the silent partner's involvement and related obligations
9. Financial Records and Reporting: Outlines financial reporting obligations to the silent partner
10. Term and Termination: Specifies the duration of the partnership and conditions for termination
11. Distribution of Assets: Describes how assets will be distributed upon dissolution
12. Governing Law: Specifies that Australian law governs the agreement
13. Dispute Resolution: Sets out the process for resolving disputes between partners
1. Non-Competition: Restricts partners from competing with the partnership - include when partners have other business interests
2. Death or Incapacity: Addresses succession planning - important for family businesses or when partners are individuals rather than entities
3. Insurance Requirements: Specifies required insurance coverage - include when business activities carry significant risks
4. Intellectual Property Rights: Addresses ownership and use of IP - include when the business involves significant IP assets
5. Additional Capital Calls: Procedures for requesting additional capital - include when future capital needs are anticipated
6. Transfer of Interest: Rules for transferring partnership interests - include when transfer restrictions are needed
7. Tag-Along Rights: Allows silent partner to join in sale of business - include when exit strategy is important
8. Drag-Along Rights: Requires silent partner to join in sale of business - include when future sale is contemplated
1. Schedule 1 - Initial Capital Contributions: Detailed breakdown of each partner's initial capital contribution
2. Schedule 2 - Profit Sharing Formula: Detailed calculation method for profit distribution
3. Schedule 3 - Business Plan: Initial business plan and strategy
4. Schedule 4 - Financial Reporting Requirements: Specific requirements for financial reports and their frequency
5. Schedule 5 - Prohibited Activities: List of activities requiring silent partner consultation or approval
6. Appendix A - Partner Details: Detailed information about all partners including contact details and tax information
7. Appendix B - Confidentiality Terms: Detailed confidentiality provisions and procedures
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