A brief discussion on partnership

Table of Contents

Introduction to partnership

Most venture capital firms are partnerships

The company types of most venture capital firms are partnerships, so it is necessary for us to briefly introduce the differences between partnerships and the commonly known limited companies.

What else industries?

In addition to venture capital firms, accounting firms, law firms, consulting firms, private equity funds, investment banks, and wealth asset managers; these types of large companies are usually partnerships──unless they are companies To go public, it will be reorganized into a limited company.

Typical cases

Buffett Partnership, Ltd.

The “Buffett Partnership, Ltd.” before Buffett turned Berkshire into a holding company was a well-known partnership. Regarding “Buffett Partnership”, please see my post for details: “The Chronicle of Buffett Partners “Warren Buffett’s Ground Rules“

Accenture

For example, before Accenture (ticker: ACN), the world’s largest technology consulting company was listed on the stock market, the company’s structure had always been a partnership. In order to go public, the company was forced to reorganize to comply with listing regulations.

Before going public, Accenture did not have a so-called CEO, a vice president, or a salesperson like other companies, and there were no market planning positions that everyone knows about and that are common in listed companies.

Note: Consulting company like Accenture use “firm”, not “company”, especially when they are private held.

For Accenture, please see my post of “What kind of company is Accenture, the McKinsey of technology industry?“

Partners company highlight

Partners’ profit sharing

General partners refer to investors who invest in venture capital companies. They will not participate in the daily management of venture capital companies; the opposite is general partners.

Note: Ordinary retail investors are not qualified to invest in venture capital companies at all, because the minimum entry threshold for capital is more than one million U.S. dollars.

The general rule are below:

Investors must pay 2% of funds as annual management fees every year.
The general partner can share 20% of the venture capital company’s profits, and the remaining 80% is distributed to the general partner.

Partnerships vs. Limited Companies

A partnership can distribute the profits generated by the company to its partners on the premise of avoiding double taxation; in comparison, most listed companies are limited companies. When listed companies distribute profits to shareholders, there will be Disadvantages of double taxation.

Key points of partnership agreement

General partners will be required to devote themselves fully to the partnership and must also assume the legal obligations and responsibilities of the partnership. Therefore, the general partners and the roles of general partners in a partnership are usually defined separately by agreement. The main contents of the protocol specifications must include the following items:

How company profits are distributed
Rights and obligations
Shareholding ratio and redemption period
Company management
Conflict of interest
Areas of investment

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