The road to establishing a successful business is long. It is filled with sacrifice, late nights, early mornings and an ongoing obsession with your idea. As every hardworking entrepreneur will tell you, at times, it can also be a lonely journey.
But it doesn’t have to be. Many entrepreneurs have built successful companies by first building a fundamental relationship; a business partnership.
Choosing the right business partner can make or break your business. It stands to reason then that you should take careful consideration when selecting a partner to traverse the rocky landscape of entrepreneurial life.
Could the right partner be your difference between sinking and success? Let’s take a look at the basics of a business partnership to find out.
What is a business partnership?
A business partnership is a legal relationship between two individuals or companies. Either way, a partnership is a contractual business relationship where both parties share the profits and cover a company’s losses.
How do partnerships work?
There are various ways a business partnership can work. In some instances, two or more partners will run the business and share the liability. In other partnership structures, some partners may have limited involvement and liability.
A partnership, however, is not a corporation. It’s closer to a sole proprietorship because it isn’t independent of the individuals running the business. This means that the partners are directly responsible for any liability, such as debt or legal action.
That may sound intimidating, but there are several reasons why a partnership is a great idea.
The advantages of a partnership
- More start-up capital and expertise
- Sharing the financial burden
- Having a partner should ease the workload
- You get to share your business journey with someone.
The disadvantages of a partnership
- Everyone is liable for debts, whether caused by a partner or not
- Sharing control of a business can be difficult
- Arguments are bound to happen which can cause issues if not handled correctly
- Should you ever wish to sell the business, all partners must agree to do so.
Partnership vs LLC
In some circumstances, business owners will choose to form an LLC. An LLC is a Limited Liability Company which is treated as a partnership for income tax purposes. The key difference between an LLC and a partnership is that partners in an LLC structure are protected from liability. As discussed above, in a partnership structure, only limited partners are protected.
Making the right move
The key to any successful partnership is trust. If you are considering a partnership agreement for your business idea, ensure that you choose your partner wisely and pick a structure that works for both of you.
From there, it is essential that you draw up the necessary agreements and put pen to paper. This may seem strange, especially if you’re going into business with a close friend or a family member, but it’ll pay off, in the long run, should you run into trouble down the road.