PRIME business club

Russell asks:I and some colleagues are in the process of starting a business. We are at the very early stages and would like to know what the expert views are on Partnerships (with limited liability) and Co-operatives. We all want the same from the company and we all want to have an equal input. Which option out there affords the most democratic way of doing business?

Whilst there is a lot of advice out there it would be great to have an expert’s view. For example perceptions - I often think of co-operatives as a little backwards. This is only based upon my experience of growing up in a rural area where co-operatives tended to struggle for money and therefore “relied” on others in bad times. So can a co-operative be seen as “today” enough?

Robert replies:

There are two issues here for you to consider:

1. leadership - as someone has to be the boss - even if elected to that role by equal partners in the venture
2. legal structure - and choosing the right one

Make sure you’re not failing to grasp the leadership nettle by choosing one of you to lead. Rotate leadership annually if you like, but someone needs to have the final say - however democratic the process

As for legal structures - LLP might well be the best bet but take advice from an accountant.

Robert Ashton is a popular business speaker and runs ‘Business Boot Camps’ for entrepreneurs seeking growth

Will replies:

Business is a game and all games have rules. Partnership or Co-op needs the same rules.

Things will go wrong and you will fall out!  Go through, at the start, what you are going to do when this happens.  I was in a partnership for 25+ years - believe me I know what I’m talking about.

 Will Kintish, Business networker, speaker and trainer, replies:

 
John replies:

Partnerships tend to be between small numbers of people and cooperatives often encompass larger numbers of generally local people with schemes tending to be more ‘community’ in nature.  Cooperatives therefore have the disadvantage that decision making is usually a longer process and there is more chance that there could be a conflict between member’s views. However there may be a larger pool from which to draw knowledge.  Whilst investors are less likely to withdraw finance at short notice there is also less incentive for investors to invest extra capital should the need arise.  Cooperatives also tend to limit the choice of external finance. There are however tax incentives, for example employee share schemes, although most small cooperatives would find these too expensive to run. 

Limited Liability Partnerships (LLP) can be registered simply at Companies House for a fee of £20. LLPs offer limited liability for partners to protect assets.  Therefore the main advantage is that the legal entity (the LLP), rather than individuals, is responsible for any debt that may arise.  With any partnership it is essential to have a Deed of Partnership as this will help to avoid any misunderstandings or disputes.  This would set out the amount of capital, how partners will share profits or losses and any salaries.  Also how much time each partner would devote to the business, who does what management task and which things would need a collective agreement. This agreement should also cover how any new partners can be appointed and what happens if a partner leaves or dies.   In short my own feeling is that a Limited Liability Partnership would tend to be a tighter framework from which to run the business.

John Lamb is the editor of Ability magazine, a campaigning publication for people who have difficulty using IT.