Many small businesses or family-owned companies are organized as equal partnerships. This essentially gives each partner an equal share in the decision-making process. Any action taken by the organization must result from a consensus or a compromise reached by the partners. While this seems like a reasonable, democratic way to run a business, this organizational method can quickly highlight problems should the company disband.
It is not uncommon for a husband and wife to start a company together. In doing so, they often decide on an equal partnership. Similarly, a parent might hand ownership of the business down to children as an equal partnership – each sibling receives an equal share of the rights and responsibilities. While this might seem like an organizational strategy that encourages communication and harmony, reality is often the opposite, including:
- One partner makes a mistake that causes a downturn in business or growth potential
- Environmental or economic factors create sudden conflicts for which there is no easy resolution
- The partners have significant disagreements about the business succession plan and the next generation of leadership
While these situations can be challenging for any organizational structure, those following an equal partnership strategy can experience dire consequences.
In an equal partnership, significant disharmony can quickly escalate since there is no true voice of leadership. Challenges can erode trust and eradicate productive communication. It can be difficult to reach any type of consensus about the future of the organization when everyone has an equal share in the decision-making process. When everyone is aligned toward the same goal, an equal partnership can be nimble and fast-moving. Facing catastrophic decisions, however, the business can experience heated debates.
During the business formation process, the partners must include decision-making steps in the operational bylaws. Additionally, the partnership agreement must include language geared toward resolving disputes and the eventual breakup of the business.