A partnership could be defined as a contractual relationship between two or more persons carrying on a joint business venture with a view to profit, each incurring liability for losses and the right to share profits; A legal contract entered into by two or more persons in which each agrees to furnish a part of the capital and labor for a business enterprise, and by which each shares a fixed proportion of profits and losses. It is a tailored business relationship based on mutual trust, openness, shared risk and shared rewards that results in business performance greater than would be achieved by the two firms working together in the absence of partnership.
The Partnership Model
Partnership model provides a structured and repeatable process to effectively and efficiently build and maintain tailored business relationships that may become an asset for executives looking for competitive advantage. It is designed as a tool to help develop new partnerships, which intending partners can use to access the drivers and appropriateness of partnering. Thus, where they all agree on the potential, they must then decide on the type of partnership to enter into.
Types of Partnerships
Traditional/General Partnership: Every partner is jointly liable for all debts and obligations of the firm sustained while the person is partner. As such, the hazards each partner faces as a result of the acts of the other partners and employees are quite significant.
- Limited Liability Partnership (LLP): Is a hybrid of the general partnership in which partners maintain the same economic relationship as in a general partnership, but partners are not jointly liable for the debts and liabilities of the partnership.
- Equity Partnership: Partners here are part-owner of the business, and are entitled to a proportion of the distributable profits/loss of the partnership in proportion to their ownership percentages.
- Non Equity Partnership: Partners are employed and given the title of partner, but have no financial interest in the firm. They earn salaries or share in total profit based on their performance and contribution to the firm.
Other Partnership Types
- Multidisciplinary Practice: is a partnership of professionals of a practice with professionals outside of that core practice who support or compliment the core practice. For example, a partnership of Accountants and non-Accountants (say lawyers) that provide clients with a wider range of services by one firm.
- Virtual Firms: In this digital age, some people have advocated for virtual partnerships. The idea is to pull together professionals from anywhere in the world to form a ‘dream team’ of sorts who work by loging into a server from their locations. A case in point is American virtual firm Axiom Legal (www.axiomlegal.com).
- Corporate Structure: Professional service firms have been under pressure for a while now to become more corporate or business-like in their structures .This corporate model is at best a hybrid of the typical Partnership model and a corporate governance model.
- The interests of partners as shareholders is separated from the management and operational decisions of the organization
- There is an Executive Board
- Managing partner role is more executive and decisions are less consensus driven.
Partnership: What it basically means
1.Every partner is a part owner of the business –Every partner is a part-owner of all of the businesses no matter how configured or the entities through which they trade & generate the assets. This means collective ownership of the different client portfolios and assets – current client portfolios, goodwill , etc, and all of the capacity to generate future revenues. Partners have an undivided interest in the business.
2.Partners are the managers of the business and therefore accountable for its Performance and ultimately its Results. Accordingly, the partners must hold each other accountable to one another, and to the firm. Despite the impact of brand, synergy and leadership roles on a partnership’s performance, they should be able to largely disaggregate the partnership’s result in order to ascribe and ascertain individual partners’ performance.
3.Performance and Results – The partnership’s results are primarily its financial performance – (i) portfolio growth from new work, new clients, etc, generated, (ii) top line revenues from delivered work, (iii) cost contained, managed &/or optimized, and (iv) bottom line results. It also includes its performance on Strategic management, R&Q management, People management, Market positioning and other measures of performance. For each key metric there should be a partner who is responsible, and who can be held accountable. To hold a partner accountable there needs to be clarity about the performance target(s). Such metrics/targets will be quantitative, qualitative and simple to determine (actual performance), and controllable by the partner.
4.Partners have different capabilities and roles, and over time, all partners will have contributed in one form or the other to the creation of the current client portfolios and staff capacity in varying degrees. For clarity, every partner will have generated work – new clients or new work, over time. In addition, every partner will have delivered client work over time. All other things being equal, the longer one has spent as a partner, the more it is expected that he/she is likely to have contributed to the creation of the current client portfolio and other assets owned by the businesses. Thus, contribution may be loosely correlated to time spent as a partner. It is clear from experience that contribution to the commonwealth of client portfolios is not necessarily directly related to time spent as partner. But time spent as a partner is the simplest measure of this relative accretive contribution.
5.Leadership : The Client Service Partner (CSP) role is one of the partnership’s key leadership roles as its business is impacted significantly by success or failure in this role – be it risk management, client management, staff management, engagement economics management etc. The CSP role is the front line role of how the partnership delivers the firm to clients and to every other person. It is therefore a very significant role.
Olagoke Odubunmi LL.M, BL. Legal Practitioner and Tax Research Officer at Maples & Temples, Lagos.
Part II here
Part I here
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