Once you have started your own business, a very basic need you have to cover first is your financing resources. A new company will not generate profit from its first day, so you need to find a way to pay for your expresses during this time. You can choose between going it all alone or forming a business partnership. Your option depends exclusively on your situation and not anybody else’s.
A business partnership can be formed either between individuals or between organizations. In any case, it is wise not to keep your agreement just oral and everything you consent should be written down in a contract, to protect both stakeholder sides. There are four different types of business partnerships you can proceed with. These are general, limited liability company, limited liability, and limited partnership. Each one of them has different things to offer and, of course, different legal limitations. You just need to choose the one that is more suitable for you. But, like everything else in life, business partnerships have their pros and cons.
Business partnership and its advantages
There are various reasons why you should proceed with a business partnership, but amongst them, the most important are financial resources, taxation, expertise, and help with day-to-day tasks. As mentioned above, a startup company that is taking its first steps in the market, cannot support financially itself since day 1. So, a business partnership can offer you the desirable funding and equity. Moreover, since you are in a business partnership you are taxed as a pass-through entity and another advantage that arises is the sharing of the taxes that the company needs to pay.
Besides financial advantages, a partner can help a lot with daily operations and tasks. You can split up the responsibilities and this will end up in higher productivity and efficiency levels. Moreover, if you are facing a problem that you do not know how to solve, you have someone you can ask for advice from. And this has also to do with the final advantage of a business partnership, expertise. It is wise to choose a partner that possesses skills that you lack. Hence, you will strengthen areas that need improvement.
Business partnership and its disadvantages
Letting someone share the management with you in your own business, is not always easy. It will be challenging and may not end up the way you wished for if it is not handled properly. You should be aware of the disadvantages that exist and may come up regarding arrangements, liability, revenues, and opposing obligations. As mentioned above, a business partnership should be sealed in writing and not just orally. And, in that contract should be specified, every little detail of the partnership. Furthermore, you may get the funding you need at the moment, but this comes with the price of sharing your profits and receiving a lower percentage of it.
But since a business partnership is formed and practiced between people, you will have to deal with different personalities than you. This means that not all people work the same way and there is a chance you may have to step in and take responsibility for someone else’s mistakes. Last but not least, this difference of characters and personalities may also lead to conflicts of interest. There will be times you will disagree with your partner and this can lead to badly harming your company.
Whatever you choose for your case, think carefully before making a decision, because your company is something you worked hard to create and you do not want to ruin it for a reckless mistake.