What is a managing partner?
What is the difference with a partner?
What are the duties and responsibilities of the managing partner?
In this article, we will break down the notion of “managing partner” so you know all there is to know about it!
We will look at what does managing partner mean, its definition, the roles and responsibilities of partner managers, compare it with a partner, a member, an owner, a CEO, a general partner and a managing director so you can understand the nuances, and more!
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What is a managing partner
A managing partner, partner manager, managing general partner or a managing member in an LLC, is a person who owns a percentage interest in a partnership or limited liability company while being responsible for actively running the business.
In other words, the managing partner of a partnership or LLC is a person tasked to handle the day-to-day management duties of the business.
No matter what type of business you operate, you need people to run the business.
Businesses structured as partnerships or limited liability companies can have managing partners.
Such businesses include:
- Law firms
- Accounting firms
- Consulting firms
- Financial firms
- Real estate firms
- Construction firms
- Insurance firms
A partnership can choose to either hire external managers or outside managers to run the business or appoint a partner as a managing partner.
In smaller partnerships, it may be practical for all the partners to assume day-to-day operations of the business.
In partnership structures with many passive partners, the partnership may prefer hiring external managers to handle the business operations.
In a partnership or LLC, there are different types of partners, such as:
- Managing partner (or managing member for an LLC)
- General partner (in general partnerships and limited partnerships)
- Nominal partner (a person “acting” as a partner while not formally a partner)
- Silent partner (a partner whose involvement in the business is limited to providing capital)
- Limited partner (in limited partnerships)
Depending on the partner’s status in the business, the roles and responsibilities of the partner may vary.
An LLC can either hire a partner to manage the business (partner managed LLC) or a non-partner (manager-managed LLC).
It is not mandatory for an LLC to have a partner as a manager.
Some limited liability companies prefer to have a non-member manage the partnership so to avoid conflict or disputes between partners, avoid influential partners from competing for control and prevent a possible conflict of interest.
Managing partner definition
A managing partner is a person wearing two hats within a partnership: the hat of a partner and the hat of a business manager.
To better understand what it means, let’s first define managing partner.
According to the Cambridge Dictionary, the definition of managing partner is:
The owner of a company who is also one of its managers
This definition is both simple and to the point definition.
A managing partner is a person appointed as a manager of the business responsible to deliver on key performance indicators (KPIs), having business targets and objectives to achieve, while at the same time being the owner of the company.
You can have managing partners in different types of firms:
- Managing partner law firm
- Managing partner LLC
- Managing partner general partnership
- Managing partner limited partnership
- Managing partner limited liability partnership
Partner-managed vs manager-managed
Partnerships and an LLC can be either member-managed or manager-managed (non-member managed).
Smaller partnerships and LLCs may choose to have the partners and members manage the business and deal with the vendors, suppliers, employees, governments, policies, procedures and the whole nine years.
This can work well in a small group with complementary knowledge, experience and skill sets.
A small group of partners can all work hand-in-hand, devote their time to the business, and keep the business going forward.
However, there are situations where it may not be appropriate or optimal to have partners and members manage the business.
Particularly, in larger partnerships and limited liability companies, giving all partners the ability to run the business could be catastrophic as there may be too many hands in the cookie jar as they say!
You may also have partners and members who are investors or prefer to remain passive in the business.
In these structures, it may be more appropriate to hire an external manager (non-member or non-partner) to manage the company and have a few managing partners work alongside the non-partner managers.
Managing partner responsibilities
The managing partner, just like any company officer or director, is responsible to ensure that the business achieves its goals and objectives.
Typically, the managing partner reports to the executive committee of the partnership which is the equivalent body as the board of directors in a corporation.
The main operational duties of a manager partner can be summarized as follows:
- Contribute to the strategic decisions and planning of the partnership
- Help define policies and procedures
- Define external and internal communications
- Oversee and plan budgets and financial planning
- Deal with taxation and tax exposure
- Manage employees and headcount
- Promote partner relations and compliance with the partnership agreement
- Manage the business operations
- Develop and implement organizational goals
- Review the partnership’s financial performance and financial activities
- Evaluate business risk and approve contracts
- Managing partnership agreement
The exact role of a managing partner will be determined by the partnership agreement, operating agreement or the firm’s organizational documents.
Similar to co-founders in a startup who will work together to achieve a common goal and each within their own area of expertise, managing partners have similar responsibilities.
Some managing partners excel at business operations, some others are amazing in technology, others are great in marketing and so on.
Depending on the managing partner’s area of expertise and interests, he or she may be appointed to manage a specific function of the business.
The partner will always remain part of the overall strategic business decisions whether he or she is a managing partner or not.
Managing partner’s earnings
The managing partner gets paid for serving the partnership as a “manager” and being an owner as a “partner”.
As a partner and based on the partner’s shares determined by the partnership agreement, the partner will receive a distributive share of the partnership’s income on a yearly basis.
As a manager, the partner will receive a guaranteed payment for assuming management duties and taking on the responsibilities of performing services to the partnership.
Both the distributive share and the guaranteed payment are taxable income that the managing partner must report.
Typically, a partner will report his or her “salary” or earnings on Supplemental Income and Loss form Schedule E (Form 1040) of their personal income taxes.
Managing partner personal liability
Managing partners as agents
When acting on behalf of the partnership as a manager, director or officer, the partner acts as the agent of the organization having the power to bind the partnership.
As an agent, the partner manager in a partnership or LLC managing partner will have the authority to:
- Hire and fire employees
- Sign employment contracts
- Negotiate contracts on behalf of the partnership
- Enter into debt obligations
- Financially obligate the partnership
- Buy and sell partnership assets
- Sign legal documents
If the partner exceeds his or her mandate resulting in a loss to the partnership, the partner (from an agent and principal point of view) may be held responsible for the losses or damages caused to the principal.
The managing partner has a fiduciary duty to act in the best interest of the business.
As such, a managing member or managing partner will have the following legal obligations:
- Duty of loyalty
- Duty of care
The duty of loyalty means that the managing partner must put the interests of the firm before personal interests and run the business in good faith.
The duty of care means that the managing partner must act with prudence and diligence.
Managing partner as a partner
As a partner of a partnership, the managing partner may benefit from the limited liability protection or not.
A managing general partner in a general partnership can be personally held responsible for business debt, losses, lawsuits, financial obligations and the actions of other partners.
On the other hand, as a managing member of an LLC, the managing member benefits from the limited liability protection.
After all, that’s the main reason why individuals select an LLC to operate a business.
The limited liability protection shields and protects the partner’s personal assets from business creditors, banks and other liability.
As a result, the partnership structure will determine, to a great extent, the extent of liability of a managing partner for business legal and financial obligations.
Managing partner vs partner
The difference between a managing partner and a partner comes down to the level of involvement the partner will have in the operations of the business and actual business management.
A partner has an ownership interest in a partnership but does not have to manage the business.
A managing partner also has an ownership interest in the partnership and is responsible for managing the business.
Together, the partners decide on the overall strategic mission and direction of the business and the managing partners along with non-partner managers, managers, directors and the other staff and employees are responsible to execute the mission of the business.
Managing partner vs managing director
Both the managing partner and a managing director are individuals handling the day-to-day business operations of a partnership.
A managing partner is essentially a person who is both an owner of the partnership and a manager of the partnership business operations.
To say managing partner, we are referring to a partner within a partnership.
A managing member assumes an equivalent role in an LLC.
The role of a managing partner will be defined by the partners of the firm.
It’s best for partnerships and limited liability companies to provide for the managing partner’s role and responsibilities in their partnership agreement or operating agreement.
A managing director is a person who is responsible to manage the business operations but does not necessarily own a stake or share of ownership in the company.
A director will also be a person responsible for managing the company but ranks lower than a managing director.
Managing partner vs owner
The main difference between a managing partner and an owner is that the managing partner has a duty to be actively involved in the business whereas an owner can remain passive.
In other words, the owner of a partnership (partner) does not have to be a manager (partner manager).
The definition of a managing partner is more specific than the definition of an owner.
A “managing partner” is a person who is mandated to manage the business whereas an “owner” is a person who owns a business (either in full, jointly with others, part-owner, on a prorated basis etc).
The difference between a managing partner and an owner can be boiled down to the requirement of being involved in the business operations.
Managing partner vs CEO
What is the main difference between a managing partner and a CEO?
Both the managing partner and CEO have the responsibility to manage the day-to-day operations of the company.
The CEO or chief executive officer is typically the highest executive member within a corporation and he or she reports to the board of directors.
Although the CEO can also be a shareholder in a corporation, if the person does not deliver on the required KPI’s, the corporation can replace the CEO with another person.
In that case, the CEO will remain a shareholder of the business but will no longer be part of the business operations.
On the other hand, a managing partner or member-manager is a person who may also handle day-to-day business management responsibilities.
The managing partner is not necessarily the highest-ranking executive or director within a partnership like a CEO although the managing partner can be high ranking.
He or she can be responsible for a specific function, department or business operation depending on the person’s experience and competencies or given much broader powers.
Also, the managing partner cannot be fired or replaced with another person like a CEO.
The partner manager is fundamentally a partner in a partnership or a member of an LLC.
That status cannot be taken away from a partner unless the proper rules in the partnership agreement are followed.
Managing partner vs general partner
The main difference between a managing partner vs general partner is with regards to personal liability with regards to business risk.
Both the managing partner and a general partner own the business and must assume the day-to-day management of it.
Both the managing partner and general partner have the authority to act on behalf of the partnership or the business.
However, a general partner can be held personally responsible for the debt and liabilities of the business whereas a managing partner may not necessarily be personally responsible.
A managing partner of a partnership offering limited liability protection to its partners will not be held personally responsible for the legal and financial obligations of the partnership.
In a general partnership, the partners are personally responsible for business obligations.
In a limited partnership, the general partners are personally responsible for the business obligations whereas the limited partners will benefit from the limited liability protection.
In a limited liability company, all the members benefit from the limited liability protection afforded by the LLC operating as a separate legal entity.
Managing partner FAQ
What is a managing member
A managing member of a limited liability company is the equivalent of a managing partner in a partnership.
LLCs, just like partnerships, need people to run the business.
An LLC operates in a similar way as a partnership, has a similar legal structure and even taxed in a similar way.
A limited liability company has:
- Members (equivalent to partners in a partnership)
- Member managers (equivalent to partner managers in a partnership)
- Operating agreement (equivalent to a partnership agreement)
A managing member and a managing partner are equivalent in their role, the main difference is that a managing member is a member (or owner) of an LLC whereas a managing partner is a partner (or owner) of a partnership.
Is a managing partner an owner
A managing partner is both a “partner” of the firm (or owner) and a “manager” of the firm.
To be a managing partner, are necessarily a “partner” or “owner”.
If a manager is not an owner, they will be referred to as a non-owner manager or non-partner manager.
What does it mean to be a managing partner
A managing partner is a person who is a partner in a firm and responsible to manage the daily operations of the business.
The partners of a firm make decisions related to the overall strategic mission and direction of the business and the managing partners will be actively involved in the business to ensure the successful implementation and execution of the overall business objectives.
A managing partner must act with prudence and diligence and avoid placing himself or herself in a conflict of interest.
Can there be two managing partners
A partnership can appoint the number of managing partners as it deems appropriate.
Typically, the partnership agreement or the internal rules and policies of the partnership govern how many managing partners can be appointed along with their responsibilities.
In smaller partnerships, it’s even possible that all the partners act as managing partners.
In larger partnerships, having too many partner managers can be counter-productive.
In such larger structures, it may be useful to reduce the number of partner managers and, instead, hire external managers or non-partner managers.
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