Partnership Control of Business
Introduction
Partnership control of business has historically had a significant impact on business operations, with the primary goal of achieving effective and optimal management of the venture. Partnerships have frequently been used in business in order to combine the resources and talents of different partners with different capabilities to achieve a unified goal. In this way, the partnership framework allows the company to benefit from the skills of the individual partners while preventing the potential over-extension of either of the partners.
Partnerships can be formed via voluntary collaboration between two or more parties or under more official corporate agreements. The different forms of partnership control that might be implemented will depend on the preferences and characteristics of the specific relationship between the parties. This article will provide an overview of the different methods of partnership control, their respective benefits and challenges and some guidance on determining the most suitable control framework for an individual organization.
Partnership Types
The most common classification of partnerships has traditionally been divided into three categories: general partnership, limited partnership, and limited liability partnerships (LLP). The general partnership is typically formed between two or more individuals who agree to act as equal co-owners of the venture. The partners in a general partnership are liable to each other for any losses suffered by a partner as part of the business. Limited partnerships involve the same individuals plus one or more limited partners, who contribute capital to the venture and are liable only to the extent of their investment. Usually, the general partners are responsible for managing the venture and have sole authority to make decisions on behalf of the limited partners. A limited liability partnership (LLP) is an alternative to a general partnership, and involves the partners having limited liability for the debts of the venture as a separate legal entity.
Partnership Control
The control of a business partnership depends on the specific type of partnership and the wishes of the partners. Generally, the control is split between the partners who each have a say in the major decisions relating to the business. In general partnerships, this control is usually equal and is shared between the partners in accordance with their interests, capabilities and resources. While in limited partnerships and LLPs the control may differ between the partners, depending on the agreement.
In a general partnership, the partners may also decide to assign designated roles and responsibilities to each partner. This means that certain partners may have certain duties and decision-making powers within the venture, such as a partner who is designated as the treasurer or one who is responsible for the day-to-day management of the business.
The individual partners in a limited partnership and LLP typically have more control over the direction of the business and may have limited decision-making powers. The management of the venture and the day-to-day operations are generally carried out by a management committee or board of directors appointed by the partners. The appointment of a board of directors may also be subject to approval by the relevant regulatory body.
Benefits of Partnerships
Partnerships offer numerous benefits to businesses. Most importantly, they can provide the venture with access to new skills, resources and capital. The partnership framework allows businesses to take advantage of the unique talents of each partner, who can bring to the venture the skills, expertise and resources that they possess. In this way, the partnership creates a positive ‘synergy’ which can bring about significant growth and progress for the venture.
Partnerships also benefit from shared responsibility for any losses. For general partnerships, this means that the individual partners are liable for any losses suffered by the venture, making it easier to spread the burden of risk between the different partners. Limited partnerships and LLPs also depend on shared losses, but here the partners are only liable to the extent of their investment.
In addition, partnerships can be advantageous for tax purposes, where the individual partners may be able to benefit from tax deductions and tax credits.
Challenges of Partnerships
Despite the numerous benefits of partnerships, they generally involve some potential challenges. Most notably, disagreements between the partners can lead to conflict, potentially leading to disputes over decisions around the management of the venture. In such cases, it can be difficult to resolve the disagreement without damaging the relationship between the partners. It is thus important to ensure that the partners are clear on the terms of the agreement before forming the partnership.
In addition, in general partnerships, all partners may be equally liable to losses suffered by the venture. This means that if one partner is unable to pay their share of the losses, then the other partners must bear the burden. This can potentially result in financial strain on the partnership, particularly if there are substantial losses.
Conclusion
Partnership control of business can provide a useful framework for businesses to benefit from the resources, talents and expertise of the individual partners in achieving a unified goal. However, the potential challenges of partnership control must also be taken into account before establishing a venture. By considering the needs of the business, the capabilities of the partners and the aims of the venture, the most suitable type of control framework can be determined.
