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This article is about business partnerships provided by Wikipedia, the free Encyclopedia


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.


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. In order 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 in the 10th to 11th centuries 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

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]

  • 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 the formation and management of partnership agreements.[11][12] It has, in particular, shown the role of contracts and relational mechanisms to organize business partnerships.[13]
  • Politics (or geopolitics): 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.
  • Knowledge: In education, accrediting agencies increasingly evaluate schools, or universities, by the level and quality of their partnerships with local or international peers and a variety of other entities across societal sectors.[citation needed]
  • Individual: 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 complex negotiation and 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. Trust and pragmatism are also essential as it cannot be expected that everything can be written in the initial partnership agreement, therefore quality governance[14] 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.

While industrial partnerships stand to amplify mutual interests and accelerate success, some forms of collaboration may be considered ethically problematic. When a politician, for example, partners with a corporation to advance the latter’s interest in exchange for some benefit, a conflict of interest results; consequentially, the public good may suffer. While technically lawful in some jurisdictions, such practice is broadly viewed negatively or as corruption.

Partner Compensation

Partner compensation will often be defined by the terms of a partnership agreement. Partners who work for the partnership may receive compensation for their labor before any division of profits between partners.

Equity vs. salaried partners

In certain partnerships of individuals, particularly law firms and accountancy firms, equity partners are distinguished from salaried partners (or contract or income partners). The degree of control which each type of partner exerts over the partnership depends on the relevant partnership agreement.[15]

  • An equity partner is a part-owner of the business, and is entitled to a proportion of the distributable profits of the partnership.
  • 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 individuals in both categories are described as partners, equity partners and salaried partners have little in common other than joint and several liability. In many legal systems, salaried partners are not technically “partners” at all in the eyes of the law. However, if their firm holds them out as partners, they are nonetheless subject to joint and several liability.

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) and, upon distribution of profits, receive a portion of the partnership’s profits proportionate to that share. In more sophisticated partnerships, different models exist for determining either ownership interest, profit distribution, or both. Two common alternate approaches to distribution of profit are “lockstep” and “source of originationcompensation (sometimes referred to, more graphically, as “eat what you kill”).[16]

  • 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).
  • Source of origination involves the compensation of profits according to a formula that takes into consideration the amount of revenue and profit generated by each partner, such that partners who generate more revenue receive a greater share of the partnership’s distributed profit.
Law firms

Source of origination compensation is rarely 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.[16]

British law firms tend to use the lockstep principle, whereas American firms are more accustomed to source of origination. 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 a source of origination culture.[17]


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.

Common law

At common law, members of a business partnership are personally liable for the debts and obligations of the partnership. Forms of partnership have evolved that may limit a partner’s liability.

Forms of partnership

As common law there are two basic forms of partnership:[18]

  1. general partnership: a partnership in which all partners manage the business and are personally liable for its debts. 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.
  2. limited partnership (LP): a partnership in which general partners manage the partnership’s operations, and limited partners forego the right to manage the business in exchange for limited liability for the partnership debts. The liability of limited partners is limited to their investment in the partnership.

More recently, additional forms of partnership have been recognized:

Silent partners

A silent partner or sleeping partner is one who still shares in the profits and losses of the business, but who is not involved in its management.[19] Sometimes the silent partner’s interest in the business will not be publicly known. A silent partner is often an investor in the partnership, who is entitled to a share of the partnership’s profits. Silent partners may prefer to invest in limited partnerships in order to insulate their personal assets from the debts or liabilities of the partnership.

[1] Wikipedia is an online free content encyclopedia project helping create a world in which everyone can freely share in the sum of all knowledge. It is supported by the Wikimedia Foundation and based on a model of freely editable content. The name “Wikipedia” is a blending of the words wiki (a technology for creating collaborative websites, from the Hawaiian word wiki, meaning “quick”) and encyclopedia. Wikipedia’s articles provide links designed to guide the user to related pages with additional information. See https://en.wikipedia.org/wiki/Wikipedia:About