Many traditionally structured businesses may well be better suited to a partnership model. We believe that all businesses – especially SMEs – should cultivate a ‘partnership ethos’. What do we mean by this?
In short, a culture of cooperation wherein all members of the team are truly invested in the success of the business. In such businesses, all team members can be appointed partners as it’s a question of purpose, not seniority. There is leadership rather than micromanagement, and job satisfaction comes from what is achieved rather than what is received.
Partnership ethos checklist
- Everyone behaves and is treated like a business owner
- Business decisions are made on a consensus basis
- Everyone shares proportionately in the business’ success and profits
Partners are typically entitled to a share of the profits, rather than being a salary cost to the business, and are entitled to regular advance drawings based on those profit shares.
Most modern businesses are based around intellectual property, much of which they will probably not have fully identified, documented or protected. We use the expression IP (intellectual property) as it’s simple and easy to understand, but within this term we embrace a whole range of intangible assets including things like general know-how, methodologies, processes, websites, and software.
These assets usually develop naturally as the business grows; however, listing and describing them can help create a better understanding of the inherent business value and potential.
This in turn can help focus efforts on how best to further develop and recognise the value derived from such assets.
For team members who contribute to the development and enhancement of the IP, it is often a good plan to part reward them with an ‘equity interest’ in the capital value of the business or otherwise to reflect the fact that the business is making use of IP that they’ve developed.
Limited Liability Partnerships
In the UK, the Limited Liability Partnerships Act 2000 enabled LLPs (limited liability partnerships) to be formed from 2001 onwards. LLPs offer the benefit of limited liability protection to all LLP Members, or partners, in a partnership incorporated under the Act.
This means people can now become partners in a business without exposing themselves to unlimited personal liability. The use of an LLP structure not only offers the cultural benefits of a partnership, which are manifold, but also provides some tax benefits resulting from the fact that the partners are normally treated as ‘self-employed’.
Partnerships are becoming increasingly popular as a business structure of choice for both new businesses and existing businesses, which can convert to LLPs or create a hybrid structure with an existing limited business.