Silent partnership
With articles 285-292 of Law 4072/2012, the State has for the first time attempted to regulate -even though in a loose manner- issues concerning the silent partnership, a corporate form that always used to appear very frequently in practice, but was barely regulated by Law. Due to this lack of non-exhaustive legislative regulation, the silent partnership constitutes the corporate type where the principle of contractual freedom has known its greatest implementation, with partners having the power to regulate their (internal) partnership relations totally freely.
The silent partnership is an “internal” company with no legal personality, in which the acts that promote company objects are taking place only in the name of one partner (natural person or partnership) who is called the “apparent partner”, while partners that are not known outside the company (silent partners) participate in the financial results (gains and losses) that derive from the actions of the apparent partner. Only those who participate in the silent partnership know of its existence, while third parties that deal with it are privy only to the apparent partner.
Due to the advantages of the silent partnership, such as its versatility, its prompt inception because of the lack of disclosure and publicity formalities, the great freedom enjoyed by partners in relation to consensually regulating relations between them, the silent partnership is a very common company type in practice. For this reason, the legislative regulation of certain matters has been deemed expedient, although without it being exhaustive, to the extent that it takes away the versatility and freedom of regulating relations. In any case, the provisions of the Civil Code that concern the civil partnership (articles 741-784 Civil Code) apply whenever an issue is not regulated.
With the above having been said, Law 4072/2012 provides for the first time a legislative definition of the silent partnership, according to which with the silent partnership contract one partner (apparent partner) concedes to another or other partners (silent partner/s) the right to participate in the financial results of one or more corporate actions or of the commercial enterprise operation which the apparent partner conducts in his name but in the partners’ common interest.
Moreover, it is being made clear that the silent partnership does not have a legal personality and is not registered to G.E.MI. (General Commercial Registry) as well as that the terms and conditions of the corporate contract are proven only with an agreement in writing by the contractual parties, the content of which cannot be proven with witnesses, in contrast to what applied before Law 4072/2012 came into place, when the existence and the conditions of the silent company could also be proven with witness accounts, internal corporate books and correspondence between the partners.
The combination of the provisions of Law 4072/2012 and the provisions of the Civil Code concerning the silent partnership provides us with the following main characteristics of that company type:
• The silent partner pays his contribution to the apparent partner. The object of the contribution is transferred to the apparent partner in total or partially, or it is conceded every financial year.
• Third parties acquire rights and undertake obligations only towards the apparent partner.
• The management of the silent company is being carried out by the apparent partner, while the company contract may establish a different way of decision making and internal management.
• The silent partner participates in the company’s gains according to the percentage or amount that has been agreed upon under the company contract while, if nothing relevant has been agreed upon, all partners (the silent partner included), participate in the gains equally, with their contribution being irrelevant for that matter.
• The silent partner participates in the losses at the same percentage as in the gains. It may be agreed that his participation in the losses will not exceed the value of his contribution.
• At the time the parties have agreed upon, as well as in case of dissolution of the company, the apparent partner is obliged to account for and pay the appropriate gains to the silent partner. Additionally, the silent partner is not obliged to return gains received in previous financial years due to losses of later financial years.
• The silent partner is entitled to become personally informed about the company’s affairs and to access the company’s books and documents.
• Claims between partners expire after twenty (20) years.
• If the silent company has been established for a specific amount of time, it is dissolved when said time expires, except if the partners agree otherwise (explicitly or implicitly).
• If the company’s objective has been reached or said objective has become unreachable, due to death or bankruptcy of one of the partners, apparent or silent, the company is dissolved with an all partners agreement (unless there is a clause for the continuation of the company).
Given the fact that the silent company exists only “internally”, namely within a contract that is “being kept in the partners’ drawer”, which will come forth only as proof of what has been agreed upon between the partners in case of a judiciary dispute between them, the company’s complaint constitutes a very important matter, especially if one takes into consideration that since the apparent partner performs business in his name, there is constant danger of the silent partner to be “used” for a short period of time, mainly for monetization or turnover increase reasons, with the apparent partner terminating the company when such an objective has been reached.
Consequently, if the company has been established for an indefinite duration there may be a complaint, only if it is pursuant to the principle of good faith and it is not untimely, which is to say not at a time that the continuation of the company becomes difficult or impossible, thus impinging on the interests of the rest of the partners. In this case the party who files the complaint may be judicially forced to indemnify the other partners, to the extent that the complaint would be found untimely by the Court.
On the other hand, if the silent partnership has been established for a specific duration, there may be a complaint before the expiration of said period, only if there is a grave cause, something that needs to be judicially confirmed. If the company is terminated by complaint without a grave cause, the party who files the complaint has to indemnify the rest of the partners.
In any case though, in order for the silent partner to be a little more secure against the prospect of malicious behavior from the apparent partner, it is possible for a significant penalty clause to be included in the contract concerning the termination by complaint without important cause.
In conclusion, it is a fact that the partners of a silent partnership usually view the typical part of their agreement in a somewhat more “relaxed” way in comparison to what happens in other corporate types. On the other hand, because of the particularities of the silent partnership and given that its corporate contract provides the partners with way more freedom in relation to regulating its content, it is imperative that as many issues as possible are regulated in the most exhaustive manner, in order for the partners’ interests to be protected.