DOCSLIB.ORG

In the Growing Partnership

Total Page：16

File Type：pdf, Size：1020Kb

Download full-text PDF Read full-text
In the Growing Partnership Kerma Partners Quarterly 2007, Issue 2 GOVERNANCE in the Growing Partnership NO GOVERNANCE STRUCTURE CAN ENTIRELY PREVENT PROBLEMS CAUSED BY WEAK AND INEFFECTUAL MANAGEMENT, OR THE GENERAL MUDDLE WHICH ACCOMPANIES MANAGEMENT VACUUMS, OR LONG TERM DISASTERS CAUSED BY PETTY TYRANTS. However, a coherent and suit their particular balanced management structure circumstances. This article clearly helps. This is provides a framework for firms particularly true of a to consider when thinking governance structure which is about their governance. It aligned to the strategic and explains the transition points at business needs of the firm and or around which firms may by Nick Jarrett-Kerr which contains the appropriate need to consider changing their provisions for mature and structural model, and looks at UNDERSTANDING sensible accountability. There is some of the typical problem STRUCTURAL FAULT LINES of course no shrink-wrapped areas encountered as firms The problem is typically governance solution which will grow. The article also outlines a historical. In many cases the suit every firm at every stage in typical structure for management arrangements its development. It is, however, professional partnerships with which may have suited the important to understand both fifty to seventy five partners or partnership in the past, have the reasons for governance more and in excess of two just ceased to work as the firm difficulties and also the hundred professionals – what has moved on. As firms grow, it principles which can assist firms might be described as medium is no longer practicable to to discover sensible recipes to sized firms. involve every partner in every 7 The problem then is that firms, unless well ARTICLE SUMMARY advised, can often tend to lurch from a previously extreme consensus model of governance to an equally extreme autocratic model, spurred on by ¯ Governance structures in law firms are calls for ‘strong management’. In the extreme often outdated and ill-suited for version of the autocratic model, consultation and further growth. partner involvement disappear out of the window and partners find themselves bullied into meeting ¯ Transition points are critical as performance targets. Consensus freaks get properly constructed governance and replaced by control freaks. management can support the overall objectives of the firm. There is also no greater example of management muddle than the tangle in which many firms find ¯ Good governance structures strike a themselves over management elections. Typical balance with the firm’s strategy; examples of weird election provisions include: corporate models offer some ideas for alternatives to the classic ‘partnership • Partners in a department or practice area systems’. having the entrenched right to vote for their practice area head who then automatically has ¯ While every structural solution is a seat on the management board or executive unique, all partners need to adapt to committee; the new structures and back the required changes. • The partnership as a whole voting for board members who then divide up the jobs of decision. Equally, it becomes difficult for the managing partner and departmental heads managing partner in a fast growing firm to between them; consult with all partners or even connect with • In one firm, it is reported that the managing them in a meaningful way. At the same time, the partner is elected by a board of advisors. The firm has usually not yet developed a sensible board of advisors is appointed by the hierarchy of accountability. Combined with an managing partner; absence of role definition at the level of department or divisional head, this can lead • In another law firm, the partners in each general partners to feel disenfranchised and practice group elect the practice group uninvolved in major decision-making, and – leaders. If a partner is in more than one even worse – to become disengaged from the practice group, they get half a vote for each strategic planning and business direction of the group they are in (a partner in three groups firm. One example is the annual budget. Tablets gets 1 1/2 votes whereas a partner in one of stone delivered from a mountain top do not group gets one vote). The chairman of the seem to work well in partnerships. A budget corporate department is by definition which is prepared and delivered top down to chairman of the firm and the chairman of uninvolved partners does little to engage and the Litigation department is by definition the motivate partners to stretch for an uncomfortable managing partner. If the chairman or target. What then happens usually is that managing partner retires or resigns, an subversion and inertia take over. Partners simply election is called and all practice group ignore the loftily delivered edicts and the firm’s chairs stand for election. financial performance meanders or deteriorates. 8 Kerma Partners Quarterly 2007, Issue 2 Such bizarre practices may be designed to act as a around the twenty partner point, however, check and balance on management, but tend to informality of management tends to stop working produce governance systems which are inflexible and needs to be replaced with something a bit and slow to change and in which partners gain more formal. Partners usually have a growing election success through politics rather than appreciation that not every decision can made in management competence. The structure should partners’ meetings and become ready to embrace support methods of selection which give the best a structure in which decision-making is filtered chance of appointing the best managers rather and refined provided that they continue to be than those who are most senior, the most popular consulted by someone they know and trust and or the most politically savvy. that consensus is somehow achieved on most decisions. In this phase, a simple management RECOGNISING THE TRANSITION POINTS structure is usually enough. Accordingly, many It is critical to recognise, as early as possible, the firms will simply have a management committee growing need for a change in governance presided over by the managing partner and structure, and to anticipate the transition points reporting to the partnership on a regular basis. at which the previous arrangements for managing The next stage of development is trickier. There and governing the affairs of the firm can become is a governance transition point when the small to ineffective. We have noticed some typical medium size firm becomes too large for transition points in the growth of many management by consensus. Although this point is partnerships. Just as milk can go sour seemingly reached by firms at varying sizes, this transition within minutes, the transition point from point often (but not always) occurs when the firm effectiveness to ineffectiveness can happen within reaches between fifty and seventy five partners and a very short time. more than two hundred professionals. But there One such transition point occurs when a firm are two problems. First, change in size of itself reaches about twenty partners. Until that point a may not always bring about the need for change large measure of informality can be seen in many and is not the only transition trigger. The need partnership arrangements including partnership for revisions to the governance structure can also reward systems. Often, of course, such smaller be brought about by mergers, significant change firms are heavily influenced or led by a strong or in the leadership group, sudden change in idiosyncratic founder – or set of founding profitability, the onset of a crisis of some sort, partners – and can falter quite markedly in the and even an increase in the number of offices or classic founders’ trap if the firm fails to jurisdictions. appreciate the need for change as it develops. At TYPICAL TRANSITION TRIGGERS •SIZE •MERGERS •SIGNIFICANT CHANGES IN LEADERSHIP GROUP •SUDDEN CHANGE IN PROFITABILITY •ONSET OF CRISIS •INCREASE IN NUMBER OF OFFICES 9 The second problem is that some firms continue and to be aware of what triggers those transition with their existing management structures long points. The team can then take steps to work out after changes ought to have been made. After all, what governance structure is needed and work on the development of appropriate governance the partnership to educate the partners and begin arrangements (particularly in medium sized to soften them up for the unpleasant reality that professional service firms) tends to lag way the firm needs to make changes which are likely to behind the development of the firm’s strategy and lead to the twin displeasures of decreased growth, and varies somewhat according to how autonomy on the one hand and increased democratic or autocratic the firm has previously accountability on the other. been. Many firms partners, accustomed to consultation and even control in the context of a THE PURPOSE OF GOVERNANCE small firm, are reluctant to cede their authority as Whether you are a partner, a client, a lender (or the firm changes. This means that many firms even an investor), there are certain things which carry on growing far beyond the normal all parties want to see in a vibrant and progressive transition point without any change in structure; professional services firm. They want to see a the growing pains become more acute as they well-coordinated firm rather than just a loose struggle to continue to accommodate extreme group of individuals. Clients in particular want to consensus (or indeed extreme autocracy). see partners working as a team with consistently Accordingly, the trick is for the leadership team applied and agreed methodologies and to look ahead for anticipated transition points approaches. Indeed, how the firm delivers its THE PURPOSE OF GOVERNANCE — TEN PROPOSITIONS 1. STRATEGY CREATION FOR COMMITTED, COMPETITIVE AND PROFITABLE BUSINESSES 2. ALIGNMENT OF INTERNAL OPERATIONS WITH EXTERNAL SERVICE 3. COHESIVENESS AND COORDINATION 4.
Load more

Recommended publications
  • Nordic States Almanac 2018
    Going north DENMARK FINLAND NORWAY SWEDEN Nordic States Almanac 2018 Heading up north „If investment is the driving force behind all economic development and going cross-border is now the norm on the European continent, good advisors provide both map and sounding-line for the investor.” Rödl & Partner „We also invest in the future! To ensure that our tradition is preserved, we encourage young talents and involve them directly into our repertoire. At first, they make up the top of our human towers and, with more experience, they take responsibility for the stability of our ambitious endeavours.” Castellers de Barcelona 3 Table of contents A. Introduction 6 B. Map 8 C. Countries, figures, people 9 I. Demographics 9 II. Largest cities 11 III. Country ratings 12 IV. Currencies 16 IV. Norway and the EU 16 VI. Inflation rates 17 VII. Growth 18 VIII. Major trading partners 19 IX. Transactions with Germany 22 X. Overview of public holidays in 2018 23 D. Law 27 I. Establishing a company 27 II. Working 35 III. Insolvency – obligations and risks 47 IV. Signing of contracts 50 V. Securing of receivables 54 VI. Legal disputes 57 E. Taxes 65 I. Tax rates 65 II. VAT – obligation to register for VAT 68 4 III. Personal income tax – tax liability for foreign employees 72 IV. Corporate income tax – criteria for permanent establishment (national) 74 V. Tax deadlines 75 VI. Transfer pricing 78 F. Accounting 84 I. Submission dates for annual financial statements 84 II. Contents / Structure of annual financial statements 85 III. Acceptable accounting standards 86 G.
    [Show full text]
  • Limited Partnerships
    INTELLECTUAL PROPERTY AND TRANSACTIONAL LAW CLINIC LIMITED PARTNERSHIPS INTRODUCTORY OVERVIEW A limited partnership is a business entity comprised of two or more persons, with one or more general partners and one or more limited partners. A limited partnership differs from a general partnership in the amount of control and liability each partner has. Limited partnerships are governed by the Virginia Revised Uniform Partnership Act,1 which is an adaptation of the 1976 Revised Uniform Limited Partnership Act, or RULPA, and its subsequent amendments. HOW A LIMITED PARTNERSHIP IS FORMED To form a limited partnership in Virginia, a certificate of limited partnership must be filed with the Virginia State Corporation Commission. This is different from general partnerships which require no formal recording with the Commonwealth. The certificate must state the name of the partnership,2 and, the name must contain the designation “limited partnership,” “a limited partnership,” “L.P.,” or “LP;” which puts third parties on notice of the limited liability of one or more partners. 3 Additionally, the certificate must name a registered agent for service of process, state the Post Office mailing address of the company, and state the name and address of every general partner. The limited partnership is formed on the date of filing of the certificate unless a later date is specified in the certificate.4 1 VA. CODE ANN. § 50, Ch. 2.2. 2 VA. CODE ANN. § 50-73.11(A)(1). 3 VA. CODE ANN. § 50-73.2. 4 VA. CODE ANN. § 50-73.11(C)0). GENERAL PARTNERS General partners run the company's day-to-day operations and hold management control.
    [Show full text]
  • Addressing Duty of Loyalty Parameters in Partnership Agreements: the More Is More Approach
    Athens Journal of Law XY Addressing Duty of Loyalty Parameters in Partnership Agreements: The More is More Approach * By Thomas P. Corbin Jr. In drafting a partnership agreement, a clause addressing duty of loyalty issues is a necessity for modern partnerships operating under limited or general partnership laws. In fact, the entire point of forming a limited partnership is the recognition of the limited involvement of one of the partners or perhaps more appropriate, the extra-curricular enterprises of each of the partners. In modern operations, it is becoming more common for individuals to be involved in multiple business entities and as such, conflict of interests and breaches of the traditional and basic rules on duty of loyalty such as those owed by one partner to another can be nuanced and situational. This may include but not be limited to affiliated or self-interested transactions. State statutes and case law reaffirm the rule that the duty of loyalty from one partner to another cannot be negotiated completely away however, the point of this construct is to elaborate on best practices of attorneys in the drafting of general and limited partnership agreements. In those agreements a complete review of partners extra-partnership endeavours need to be reviewed and then clarified for the protection of all partners. Liabilities remain enforced but the parameters of what those liabilities are would lead to better constructed partnership agreements for the operation of the partnership and the welfare of the partners. This review and documentation by counsel drafting general and limited partnership agreements are now of paramount significance.
    [Show full text]
  • Comparative Company Law
    Comparative company law 26th of September 2017 – 3rd of October 2017 Prof. Jochen BAUERREIS Attorney in France and Germany Certified specialist in international and EU law Certified specialist in arbitration law ABCI ALISTER Strasbourg (France) • Kehl (Germany) Plan • General view of comparative company law (A.) • Practical aspects of setting up a subsidiary in France and Germany (B.) © Prof. Jochen BAUERREIS - Avocat & Rechtsanwalt 2 A. General view of comparative company law • Classification of companies (I.) • Setting up a company with share capital (II.) • Management bodies (III.) • Transfer of shares (IV.) • Taxation (V.) • General tendencies in company law (VI.) © Prof. Jochen BAUERREIS - Avocat & Rechtsanwalt 3 I. Classification of companies • General classification – Partnerships • Typically unlimited liability of the partners • Importance of the partners – The companies with share capital • Shares can be traded more or less freely • Typically restriction of the associate’s liability – Hybrid forms © Prof. Jochen BAUERREIS - Avocat & Rechtsanwalt 4 I. Classification of companies • Partnerships – « Civil partnership » • France: Société civile • Netherlands: Maatschap • Germany: Gesellschaft bürgerlichen Rechts • Austria: Gesellschaft nach bürgerlichem Recht (GesnbR) • Italy: Società simplice © Prof. Jochen BAUERREIS - Avocat & Rechtsanwalt 5 I. Classification of companies • Partnerships – « General partnership » • France: Société en nom collectif • UK: General partnership (but without legal personality!) • USA: General partnership
    [Show full text]
  • Establishing and Managing a Company
    ESTABLISHING AND MANAGING A COMPANY 5.1 Corporate Structures ........................................................ 59 5.2 Accounting ........................................................................ 63 5.3 Auditing ............................................................................. 63 5 5.4 Establishing A Company .................................................. 64 Image Signing a contract, studio shot Establishing a company can be done quickly and easily. 5.1 CORPORATE STRUCTURES Economic freedom, which is guaranteed under the Swiss Consti­ Numerous official and private organizations assist tution, allows anyone, including foreign nationals, to operate a entrepreneurs in selecting the appropriate legal form for business in Switzerland, to form a company or to hold an interest in one. No approval by the authorities, no membership of chambers of their company and can provide advice and support. commerce or professional associations, and no annual reporting of The federal government’s various websites offer a wide operating figures are required to establish a business. However, foreign nationals must have both work and residence permits in range of information on all aspects of the company order to conduct a business personally on a permanent basis. formation process – from business plan to official Swiss law distinguishes between the following types of business regis tration. entities: partnership­type unincorporated companies (sole proprietorship, limited partnership or general partnership) and capital­based incorporated
    [Show full text]
  • General Partnership
    BUSINESS ENTITIES VIDEO SERIES, Script Three GENERAL PARTNERSHIP A general partnership is a business owned by two or more people (even a husband and wife), who carry on the business as a partnership. Partnerships have specific attributes, which are defined by Kansas Statutes. All partners share equally in the right and responsibility to manage the business. Each partner is responsible for all debts and obligations of the business. The distribution of profits and losses, allocation of management responsibilities and other issues affecting the partnership are usually defined in a written partnership agreement. General partnerships may file different statements with the Office of the Secretary of State. The filings are optional and not mandatory. The filing fee for Partnership Statements is $35. General partnerships have certain advantages. A general partnership is easy to organize and has few initial costs. A general partnership draws financial resources and business abilities from all partners. It has quasi-entity status in that it may own assets, contract in the partnership name, may sue and be sued in the partnership name and may file separate bankruptcy. Liability is shared by all partners. Partners may take business losses as a personal income tax deduction. The partnership may register a trademark or a service mark to help prevent confusion resulting from deceptively similar business names. General partnerships have certain disadvantages. Each partner is personally liable for all the obligations of the business, not just his or her share. Thus, if a company truck is involved in an accident, each partner's personal assets may be attached by the court to help compensate the injured party.
    [Show full text]
  • Establishing a Business Entity in Australia
    Fall 19 INTERNATIONAL LAWYERS NETWORK BRAUNEIS KLAUSER PRÄNDL ESTABLISHING A BUSINESS ENTITY IN AUSTRIA ILN CORPORATE GROUP [ESTABLISHING A BUSINESS ENTITY IN AUSTRIA] 2 This guide offers an overview of legal aspects of establishing an entity and conducting business in the requisite jurisdictions. It is meant as an introduction to these market places and does not offer specific legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship, or its equivalent in the requisite jurisdiction. Neither the International Lawyers Network or its employees, nor any of the contributing law firms or their partners or employees accepts any liability for anything contained in this guide or to any reader who relies on its content. Before concrete actions or decisions are taken, the reader should seek specific legal advice. The contributing member firms of the International Lawyers Network can advise in relation to questions regarding this guide in their respective jurisdictions and look forward to assisting. Please do not, however, share any confidential information with a member firm without first contacting that firm. This guide describes the law in force in the requisite jurisdictions at the dates of preparation. This may be some time ago and the reader should bear in mind that statutes, regulations and rules are subject to change. No duty to update information is assumed by the ILN, its member firms, or the authors of this guide. The information in this guide may be considered legal advertising. Each contributing law firm is the owner of the copyright in its contribution.
    [Show full text]
  • Modification of Fiduciary Duties in Limited Liability Companies
    Modification of Fiduciary Duties in Limited Liability Companies James D. Johnson Jackson Kelly PLLC 221 N.W. Fifth Street P.O. Box 1507 Evansville, Indiana 47706-1507 812-422-9444 [email protected] James D. Johnson is a Member of Jackson Kelly PLLC resident in the Evansville, Indiana, office. He is Assistant Leader of the Commercial Law Practice Group and a member of the Construction Industry Group. For nearly three decades, Mr. Johnson has advised clients in a broad array of business matters, including complex commercial law, civil litigation and appellate law. He has been named to The Best Lawyers in America for Appellate Practice since 2007. Spencer W. Tanner of Jackson Kelly PLLC contributed to this manuscript. Modification of Fiduciary Duties in Limited Liability Companies Table of Contents I. Introduction ...................................................................................................................................................5 II. The Traditional Fiduciary Duties ..................................................................................................................5 III. Creation of Fiduciary Duties in Closely Held Business Organizations ......................................................6 A. General Partnerships ..............................................................................................................................6 B. Domestic Corporations ..........................................................................................................................6
    [Show full text]
  • Partnership Governance of Large Firms Larry E
    Partnership Governance of Large Firms Larry E. Ribsteint This Article examines private-equity firms as an example of "uncorporate"structures in the governance of large firms. Other examples include master limited partnerships, real estate investment trusts, hedge funds, and venture capitalfunds. These firms can be seen as an alternative to the corporateform in dealing with the centralproblem of aligning man- agers' and owners' interests. In the standard corporateform, shareholdersmonitor power- ful managers by voting on directors and corporatetransactions, suing for breach offidu- ciary duty, and selling control These mechanisms deal with managerialagency costs by relying on other agents, including auditors, class action lawyers, judges, independent di- rectors, and shareholderintermediaries such as mutual and pension funds. Uncorporations substitute other devices for corporate-type monitoring, including more closely tying manag- ers' economic wellbeing to the firm's fortunes and greaterassurance of distributionsto own- ers. This Article also explores the implications of this analysis for the corporate tax, the enforcement offirms' contractualarrangements, and the future of publicly held firms. INTRODUCTION The modem corporation has been an important engine of busi- ness development. It provides a mechanism for centralizing manage- ment in powerful managers, and thereby a framework for long-term strategic planning and the type of execution essential to large firms. But it also presents the challenge of ensuring that these powerful managers act in investors' interests. While commentators and policymakers debate how to tweak cor- porate governance to ensure managers' accountability to owners, many large firms have turned to a distinctly different partnership form.' Li- "t Mildred van Voorhis Jones Chair, University of Illinois College of Law.
    [Show full text]
  • Choosing the Best Legal Structure for Your Professional Practice
    4 APA PRACTICE ORGANIZATION ALTERNATIVE PRACTICE MODELS Choosing the Best Legal Structure for Your Professional Practice here are a variety of legal structures you might choose for your practice. Understanding your Toptions is important since these structures are often the building blocks for alternative practice models such as independent practice associations (IPAs) and management service organizations (MSOs). Given the evolving health care marketplace, it is important to know how traditional legal business models compare to alternative practice models. In some cases, considering the alternatives may lead you to conclude that you simply want or need to shore up your practice by creating a formal legal structure where none currently exists. company. The accompanying chart outlines key comparative If you have a business plan (see apapracticecentral.org/ advantages and disadvantages for the models described business/management/tips/secure/business-plan.aspx), you taking into account the factors listed above. should consider reviewing that document to see if you need Importantly, the requirements for different legal structures to make any changes to your current practice model. If you may vary by state. And not all of the models described are are just getting started in practice, you will want to consider available in all states. For example, the limited liability the following factors in deciding what kind of legal structure partnership is a relatively new concept and therefore is not to adopt: recognized universally. In addition, some
    [Show full text]
  • Methods of Operation in Germany G Vernon Leopold
    Boston College Law Review Volume 6 | Issue 3 Article 7 4-1-1965 Methods of Operation in Germany G Vernon Leopold Follow this and additional works at: http://lawdigitalcommons.bc.edu/bclr Part of the International Trade Law Commons Recommended Citation G V. Leopold, Methods of Operation in Germany, 6 B.C.L. Rev. 487 (1965), http://lawdigitalcommons.bc.edu/bclr/vol6/iss3/7 This Article is brought to you for free and open access by the Law Journals at Digital Commons @ Boston College Law School. It has been accepted for inclusion in Boston College Law Review by an authorized editor of Digital Commons @ Boston College Law School. For more information, please contact [email protected]. METHODS OF OPERATION IN GERMANY G. VERNON LEOPOLD * INTRODUCTION The European Common Market holds out great prospects for in- creasing the world-wide competitive position of European enterprises. For one thing, the elimination of tariff walls among members of the European Economic Community inter se will operate as a significant cost-reducing factor. Also, the free flow of labor and the increase in research incident to free traffic across national boundaries is infusing a hitherto unknown degree of efficiency into European production. American industry, unable in the long run to beat such competition, is increasingly seeking to protect its profits by spawning controlled or wholly-owned European competitors. In this article some of the principal considerations affecting the choice of the legal instrumentality to be used in German business organizations are to be discussed. BRANCHES AND SUBSIDIARIES When contemplating the establishment of a German operation, the first question to be decided is whether the operation should be carried on as a legal part of the parent, i.e., through a branch, or whether it should be run as a separate legal entity, i.e., through a sub- sidiary.
    [Show full text]
  • General Business Structure Chart Not All Entity Types Could Be Represented Within This Chart
    General Business Structure Chart Not all entity types could be represented within this chart. Consult your attorney for specific entity structures. Corporation Limited Liability Com- General Partnership Sole Proprietor Non-Profit (C or S*) (Benefit) pany (LLC)(L3C) Who are the owners? 1+ Shareholders (owners) 1+ members (owners) 2+ partners (owners) 1 owner No owners, governed by Board of Directors (minimum of 3 directors) What are the Bylaws Operating Agreement Partnership Agreement Business plan Bylaws governing recommended documents? How is the business Sale of stock, retained profits LLC member investments, Partner investments, Proprietor’s investment; re- Grants, individual financed? retained profits retained profits tained profits contributions/donations, fees for services Who is liable? Shareholders have limited Members (owners) have limited Unlimited personal liability for Unlimited personal liability Directors/Employees are not liability for debts of liability for debts of the LLC debts of the business including for debts of the business and personally liable for debts of corporation your partners’ actions yourself the business Who receives C-Corp: Subject to LLC members in Partners in proportion to Proprietor Retained within the profits? distributions to Shareholders. proportion to investment, or by investment, or by organization in furtherance of S-Corp: Shareholders in agreement agreement non profit purposes propertion to investment What are the entity tax C-Corp pays taxes on income, Choose to be taxed as a part- Each partner reports and pays Owner reports and pays taxes Tax exempt status granted after obligations in RI? corporations are subject to the nership/sole share of taxes on personal tax on personal tax return application to the US Internal minimum corporate franchise proprietor - disregarded entity return Revenue Service.
    [Show full text]