Alan Dean

CTO, Developer, Agile Practitioner

Photograph of Alan Dean

Monday, November 24, 2008

Partnership or Company?

At DDD7, I had an interesting discussion about the question of whether a partnership or a company is the better model for a consultancy.

I think that the accepted practice is to incorporate as a limited company. Certainly I can see advantages in doing so: in tax treatment and the limited liability that it offers.

However, I wonder if partnership is a more appropriate model; even potentially a more ethical model.

The joint and several liability of partners requires that they treat business with care. It is interesting to note that both lawyers and accountants, both classes of fee-earning professionals, either often use partnership or are even required by law to do so. I don't know what the practice is for other types of fee-earning professionals, but I would be interested to find out.

Looking at the current devastation in our financial markets, I ask myself if the mighty investment banks would have placed such huge and arguably unwarranted risks if they had remained the partnerships that they were, rather than change to corporations. Similarly, would the UK Building Societies which relinquished their mutual status during the 1990s have fared better if they had not done so?

My thoughts on this subject are not fully formed but I do have a nagging suspicion that we ought to consider which is the appropriate model.

I would be very interested to hear what people think - especially those who are customers of consultancies. Would you have more or less faith in a business where the partners did not have limited liability? Perhaps you prefer dealing with companies? Either way, what would be your rationale?

For quite some time I have had a feeling that we need to mature as a profession, that there will come a time when our customers will expect the same level of professional certification and regulation that they have with other service providers such as lawyers, accountants and engineers. Perhaps the kind of organisations we work for will be part of this maturation.

1 comment:

John Heintz said...

Thanks for posting this Alan.

I've not really thought about the partnership/corp distinction before (more below), but I have considered lawyers and medical practices.

My brother-in-law, Mat, is an anesthesiologist working in a successful ~50 doctor group. I'll ask him what structure they are legally filed under, but the way they work is a shared ownership and responsibility model.

They each share the risks, rewards, and responsibilities of the group - and are positively motivated to help themselves and the group succeed. Mat for example was coordinating the schedules of doctors to hospitals and clinics for some time.

The partnership vs corp distinction you bring up is really interesting. I've mostly ignored that instead thinking of that mostly as a tax/filing/lawsuits issue. The way that people work together, take responsibility, and cooperate toward success has always seemed like a function of the people, not the contract they signed coming in.

Perhaps I need to re-investigate this assumption though. I do strongly believe that a contract can strongly influence the operation of a project - a waterfall vs agile project should have different contractual expectations. So why should the partners/managers of a group.