Why Sleeping Investors Lose Money: The Hidden Risks of Passive Business Investments

As a Debt Recovery Lawyer; I've seen countless "sleeping investors" get burnt in investments.

Investing in a business as a sleeping partner might sound like the easiest way to make passive income - dump in a wad of cash, sit back and wait for the money to roll in. Zero effort, maximum ROI right?

In reality, it’s often a recipe for disappointment.

Here’s why it rarely works out:

1️⃣ No Control Over Daily Operations

You have no say in how the business is run. If the active partners make bad decisions or mismanage funds, there’s nothing you can do about it.

2️⃣ Limited Access to Financials

You’re not involved in the day-to-day, so you have no idea what’s really going on. Even if you’re given reports, how do you know they’re accurate? Creative accounting can make a failing company look profitable - or even make profits disappear on paper.

3️⃣ What Profits?

Many businesses declare a relatively lower profit because revenue is eaten up by director fees, inflated salaries, "entertainment" claims, and “company assets” that are really just personal luxuries. By the time dividends should be paid, there’s nothing left.

4️⃣ No Transparency, No Accountability

Without real oversight, you won’t see the red flags until it’s too late. By the time you start asking questions, the money may already be gone.

5️⃣ Legal Action Is a Nightmare

Even if you suspect fraud, proving it is a different story and comes with a high burden of proof. Directors who know how to play the game will have paperwork to justify everything. Taking legal action is expensive, time-consuming, and may end up fruitless.

This is not to say that you should never invest in businesses. If run properly and ethically, they can bring in life-changing returns.

But if you’re going to invest in a business, don’t just hand over your money and hope for the best.

Either be actively involved or have rock-solid safeguards in place, e.g. a strongly drafted shareholders agreement with reserved matters firmly in place, approval mechanisms for larger payments and so on.

At the end of the day, your money is your responsibility. A handshake and good faith aren’t enough - business is business. If you’re not in control, make sure you’re protected. Because once the money is gone, all you’ll be left with are regrets and an expensive legal battle you may never win. AUTHOR PROFILE

Rudi Cheu is the principal of Rule & Co. Advocates & Solicitors; a Malaysian law firm focusing on practical and cost-effective solutions for debt recovery and commercial disputes. With nearly a decade of debt recovery experience under his belt; Rudi is passionate about helping businesses navigate debt recovery challenges and shares insights at www.rulecolaw.com/blog and recoverdebt.my

He can be reached via Whatsapp: +60102028095 or via email: rudi@rulecolaw.com