How are business decisions made in a partnership?

Small businesses often start as a partnership because pooling the resources and capital of like-minded individuals can be of great benefit to the long-term success of a company. Partners also share in the financial loss of the business if operations do not generate enough revenue, making the business structure less of a risk to each individual business partner. These are some of the clear benefits to creating a partnership, but caveats exist as well.

One of the greatest challenges in maintaining a fruitful partnership is creating a system for effective decision making. To avoid confusion and conflict among partners, business decisions can be made by consensus, through a democratic process or by delegation.

Under a consensus model, the process of decision making involves all partners in the business. Each partner has the opportunity to share their opinion on a decision and is tasked with presenting all advantages and disadvantages of the proposed decision. The other partners are encouraged to ask questions to fully understand that partner's position and can raise any issues or concerns with a particular proposal.

The consensus process is meant to be a comprehensive approach to decision making, focusing on finding common ground among partners and eventually reaching a collective decision. This does not mean decisions are made unanimously. Business partners agree to live with and support a decision based on open and full discussion surrounding the issue.

Decision making through the democratic process differs from the consensus model in that final decisions on a proposal are made by majority vote. The process leading up to a decision is similar to a consensus – each partner has an opportunity to ask questions, share concerns and present alternatives.

The democratic model is meant to promote open discussion, but partners are required to vote in one direction or the other. When there are only two partners in a business, outside business advisors or upper management are used to create a balanced voting pool.

In businesses with large numbers of partners, delegation is often used to ensure decisions are made quickly and efficiently. Delegation is the process of deeming certain partners, committees, managers or long-term employees responsible for making certain decisions on behalf of the company.

Some partners have specific skills in marketing or advertising, while other individuals have strong backgrounds in finance. The partnership can utilize these specializations by delegating decision making in these categories to the appropriate individual. Checks and balances such as reporting back to other partners soon after a decision is made can help create a collaborative environment that empowers individuals to take an authoritative role in the business.

Delegation is far less time-consuming than the consensus or democratic decision-making models.

The consensus and democratic models can take a substantial amount of time but offer the most opportunity for open discussion and negotiation. The delegation process saves time but should be implemented with a system of checks and balances to ensure no individual partner takes too much authority in decision making. Each of these decision-making models can be used as a standalone process or combined with another model to promote partnership efficiency.