Partnership
A partnership is an arrangement where parties, known as business partners, agree to cooperate to advance their mutual interests. The partners in a partnership may be individuals, businesses, interest-based organizations, schools, governments or combinations. Organizations may partner to increase the likelihood of each achieving their mission and to amplify their reach. A partnership may result in issuing and holding equity or may be only governed by a contract.
This article is about business partnerships. For other uses, see Partnership (disambiguation).History[edit]
Partnerships have a long history; they were already in use in medieval times in Europe and in the Middle East. According to a 2006 article, the first partnership was implemented in 1383 by Francesco di Marco Datini, a merchant of Prato and Florence. The Covoni company (1336–40) and the Del Buono-Bencivenni company (1336–40) have also been referred to as early partnerships, but they were not formal partnerships.[1]
In Europe, the partnerships contributed to the Commercial Revolution which started in the 13th century. In the 15th century the cities of the Hanseatic League would mutually strengthen each other; a ship from Hamburg to Gdansk would not only carry its own cargo but was also commissioned to transport freight for other members of the league. This practice not only saved time and money, but also constituted a first step toward partnership. This capacity to join forces in reciprocal services became a distinctive feature, and a long lasting success factor, of the Hanseatic team spirit.[2]
A close examination of medieval trade in Europe shows that numerous significant credit based trades were not bearing interest. Hence, pragmatism and common sense called for a fair compensation for the risk of lending money, and a compensation for the opportunity cost of lending money without using it for other fruitful purposes. To circumvent the usury laws edicted by the Church, other forms of reward were created, in particular through the widespread form of partnership called commenda, very popular with Italian merchant bankers.[3] Florentine merchant banks were almost sure to make a positive return on their loans, but this would be before taking into account solvency risks.
In the Middle East, the qirad and mudarabas institutions developed when trade with the Levant, namely the Ottoman Empire and the Muslim Near East, flourished and when early trading companies, contracts, bills of exchange and long-distance international trade were established.[4] After the fall of the Roman Empire, the Levant trade revived from the 10th to 11th century in Byzantine Italy. The eastern and western Mediterranean formed part of a single commercial civilization in the Middle Ages, and the two regions were economically interdependent through trade (in varying degrees).[5]
The Mongols adopted and developed the concepts of liability in relation to investments and loans in Mongol–ortoq partnerships, promoting trade and investment to facilitate the commercial integration of the Mongol Empire. The contractual features of a Mongol-ortoq partnership closely resembled that of qirad and commenda arrangements; however, Mongol investors used metal coins, paper money, gold and silver ingots and tradable goods for partnership investments and primarily financed money-lending and trade activities.[6] Moreover, Mongol elites formed trade partnerships with merchants from Central and Western Asia and Europe, including Marco Polo's family.[7]
Partnership agreements[edit]
To come into being, every partnership necessarily involves a partnership agreement, even if it has not been reduced to writing. In common law jurisdictions, a written partnership agreement is not legally required, but partners may benefit from a partnership agreement that articulates the important terms of their relationship.[8]
In business, two or more companies join forces in a joint venture,[9] a buyer–supplier relationship, a strategic alliance or a consortium to i) work on a project (e.g. industrial or research project) which would be too heavy or too risky for a single entity, ii) join forces to have a stronger position on the market, iii) comply with specific regulation (e.g. in some emerging countries, foreigners can only invest in the form of partnerships with local entrepreneurs).
[10] In this case, the alliance may be structured in a process comparable to a Mergers & Acquisitions transaction. A large literature in business and management has paid attention to forming and managing partnership agreements.[11] It has, in particular, shown the role of contracts and relational mechanisms to organize business partnerships.[12]
Partnerships present the involved parties with complex negotiations and special challenges that must be navigated to 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 an 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. Trust and pragmatism are also essential as it cannot be expected that everything can be written in the initial partnership agreement, therefore quality governance[13] and clear communication are critical success factors in the long run. 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.
Taxation[edit]
Partnerships recognized by a government body may enjoy special benefits from taxation policy. Among developed countries, for example, business partnerships are often favored over corporations in taxation policy, since dividend taxes only occur on profit before they are distributed to the partners. However, depending on the partnership structure and the jurisdiction 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 antitrust 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.
