A silent shareholding is known in Italy as an ‘associazione in partecipazione’. Under this arrangement, a person or a company makes a financial contribution to a business or a specific venture without becoming a partner themselves.
The silent partner (associato) makes an agreed contribution and, in return, receives a share of the profits generated. The ‘associazione in partecipazione’ is governed by Articles 2549 et seq. of the Italian Civil Code.
The entrepreneur or company (associante) grants the silent partner a shareholding, equity participation in the profits of the business or a specific transaction in return for a specific contribution.
Typical features are:
A silent partnership can therefore be a way of providing capital to a company without acquiring an equity participation under company law, for example in an Italian limited liability company (Srl). The Graber & Partner Lexicon also contains further information on shareholder financing.
In the case of natural persons, there is an important restriction to bear in mind: since the 2015 reform, a natural person’s contribution must not consist of labour – not even in part.
A private individual’s silent shareholding is therefore typically established today by providing cash or other assets.
Management lies exclusively with the company (associante). The silent shareholding therefore does not automatically have the same rights of participation as a shareholder.
However, certain control rights may be agreed in the contract. Furthermore, the silent partner is generally entitled to a statement of accounts relating to the relevant transaction or, in the case of longer-term shareholdings, to an annual statement of accounts.
In principle – unless otherwise agreed in the contract – the silent partner shares in losses in the same proportion as they share in profits.
However, their risk of loss is limited to the value of their contribution. The contract may provide for a different arrangement.
The tax treatment of a silent shareholding depends in particular on who the silent partner is and whether the shareholding is held as part of their private assets or within the context of a business activity.
If a private individual resident in Italy receives a share of profits from a capital-based silent partnership outside the scope of a business activity, these are generally subject to a substitute tax or withholding tax of 26 per cent. For tax purposes, the income is treated in a similar way to investment income from equity participations (profit distributions).
Special tax rules also apply to the company: the profit share paid to the silent partner is, in principle, not deductible as a business expense. The reason for this is that, from an economic perspective, it does not constitute remuneration for a service rendered, but rather a shareholding, equity participation in the company’s financial success – similar to a profit distribution to an investor.
Further information on the tax treatment of company profits can be found in our lexicon articles on profit distributions and dividendsand on Ires company tax.
A silent partnership offers companies the opportunity to raise capital without altering their corporate structure. The silent partner does not become a shareholder but receives a contractually agreed shareholding in the company’s financial success. It is important to have clear contractual provisions governing profit and loss sharing, control rights and the repayment of the capital contribution, as well as the tax treatment of the shareholding.
In the case of a capital-based silent shareholding, it should also be borne in mind that, for tax purposes, the silent partner’s share of the company’s profits is generally not deductible as a business expense. The silent shareholding should therefore be examined from both a legal and a tax perspective.