Partnership

From Wikipedia, the free encyclopedia

A partnership is an arrangement where parties, known as partners, agree to cooperate to advance
their mutual interests. The partners in a partnership may be individuals, businesses, interestbased organizations, schools,governments or combinations thereof.
Partnerships exist within, and across, sectors. Non-profit, religious, and political organizations may
partner together to increase the likelihood of each achieving their mission and to amplify their reach.
In what is usually called an alliance, governments may partner to achieve their national interests,
sometimes against allied governments holding contrary interests, as occurred during World War
II and the Cold War. In education, accrediting agencies increasingly evaluate schools by the level and
quality of their partnerships with other schools and a variety of other entities across societal sectors.
Some partnerships occur at personal levels, such as when two or more individuals agree to domicile
together, while other partnerships are not only personal, but private, known only to the involved
parties.
Partnerships present the involved parties with special challenges that must be navigated unto
agreement. Overarching goals, levels of give-and-take, areas of responsibility, lines of authority
and succession, how success is evaluated and distributed, and often a variety of other factors must
all be negotiated. Once agreement is reached, the partnership is typically enforceable by civil law,
especially if well documented. Partners who wish to make their agreement affirmatively explicit and
enforceable typically draw up Articles of Partnership. It is common for information about formally
partnered entities to be made public, such as through a press release, a newspaper ad, or public
records laws.
While partnerships stand to amplify mutual interests and success, some are considered ethically
problematic. When a politician, for example, partners with a corporation to advance the latter's
interest in exchange for some benefit, aconflict of interest results; consequentially, the public
good may suffer. While technically legal in some jurisdictions, such practice is broadly viewed
negatively or as corruption.
Governmentally recognized partnerships may enjoy special benefits in tax policies. Among developed
countries, for example, business partnerships are often favored over corporations in taxation policy,
since dividend taxes only occur on profits before they are distributed to the partners. However,
depending on the partnership structure and thejurisdiction in which it operates, owners of a
partnership may be exposed to greater personal liability than they would as shareholders of a
corporation. In such countries, partnerships are often regulated via anti-trust laws, so as to
inhibit monopolistic practices and foster free market competition. Enforcement of the laws, however,
varies considerably. Domestic partnerships recognized by governments typically enjoy tax benefits,
as well.
Common law
Under common law legal systems, the basic form of partnership is a general partnership, in which all
partners manage the business and are personally liable for its debts. Two other forms which have
developed in most countries are the limited partnership (LP), in which certain limited partners
relinquish their ability to manage the business in exchange for limited liability for the partnership's
debts, and the limited liability partnership (LLP), in which all partners have some degree of limited
liability.

There are two types of partners. General partners have an obligation of strict liability to third parties
injured by the Partnership. General partners may have joint liability or joint and several liability
depending upon circumstances. The liability of limited partners is limited to their investment in the
partnership.
A silent partner is one who still shares in the profits and losses of the business, but who is uninvolved
in its management, and/or whose association with the business is not publicly known; these partners
usually provide capital.

Partner compensation
In certain partnerships of individuals, particularly law firms and accountancy firms, equity partners are
distinguished from salaried partners (or contract partners). An equity partner is a part-owner of the
business, and is entitled to a proportion of the distributable profits of the partnership, while a salaried
partner who is paid a salary but does not have any underlying ownership interest in the business and
will not share in the distributions of the partnership (although it is quite common for salaried partners
to receive a bonus based on the firm's profitability). Although they are both regarded as partners, in
legal and economic terms, equity partners and salaried partners have little in common other than joint
and several liability.[11] The degree of control which each type of partner exerts over the partnership
depends on the relevant partnership agreement.
In their most basic form, equity partners enjoy a fixed share of the partnership (usually, but not always
an equal share with the other partners). However, in more sophisticated partnerships, different
models exist for determining either ownership or profit distribution (or both). Two common forms are
"lockstep" and "eat what you kill" compensation (sometimes referred to as, less graphically, a "source
of origination").
Lockstep involves new partners joining the partnership with a certain number of "points". As time
passes, they accrue additional points, until they reach a set maximum sometimes referred to as a
plateau. The length of time it takes to reach the maximum is often used to describe the firm (so, for
example, one could say that one firm has a "seven-year lockstep" and another has a "ten-year
lockstep" depending on the length of time it takes to reach maximum equity).
Eat-what-you-kill is rarely, if ever, seen outside of law firms. The principle is simply that each partner
receives a share of the partnership profits up to a certain amount, with any additional profits being
distributed to the partner who was responsible for the "origination" of the work that generated the
profits.
British law firms tend to use the lockstep principle, whereas American firms are more accustomed to
eat-what-you-kill. When British firm Clifford Chance merged with American firm Rogers & Wells, many
of the difficulties associated with that merger were blamed on the difficulties of merging a lockstep
culture with an eat-what-you-kill culture.