There are a number of benefits to be gained from forming a business partnership, especially having someone else to help make decisions and share responsibility. However, a great deal of planning is required to ensure the partnership runs without any major problems which could affect the business in the long term. Deciding who will finance the business and the percentage each partner has contributed should be documented, in addition to making a decision regarding salaries paid to partners.
One advantage of a partnership is that the cost of starting up is usually shared, which may lead to increased growth and success. The work involved in running a business and taking responsibility for all decisions is shared. Just like a sole trader, a partnership is more prone to risk, meaning that the partner’s personal assets could be at risk if the business was challenged. However, the risks along with all expenses incurred by the business are shared by the partners, reducing the burden for each individual.
Forming a business partnership with two or more partners will mean that each partner will bring their own skills and contacts to the business. This could lead to a much more effective business and greater success at a much faster rate than a sole trader business. As a business moves through the ups and downs of the business world, each partner will be able to offer motivation and support to the others, especially when times are hard.
Business partnerships don’t always work out as there are some disadvantages to forming a partnership. These should be considered carefully before forming a partnership. Although each partner has responsibility for the business, each partner is also liable for the business activities of the other partners. For instance, if one partner moved away from your location the other partners are all responsible for the debts of the partnership, not just their share.
Profits can also cause problems among partners. Deciding the percentage to be paid can be complex, especially if one partner feels they carry out more work or responsibility. Matters such as this should be decided beforehand and legally documented. Although a partnership may lead to increased profits, those profits still have to be divided up among the partners.
Having a partner or partners can make life easier when running a business, although it can also lead to disagreements. If partners don’t agree with each other, it can lead to the dissolving of the partnership or one partner buying another out. Some people may prefer to have complete control over a business rather than having to share decision making. Running a partnership may also incur problems if the business is founded on friendship. Falling out or disagreeing can lead to the end of the partnership as communication effectively ends.
Prior to forming a partnership it’s advisable to decide whether you are really able to make joint decisions or whether you would be happier having the final say. You may need a high tolerance for other people, as you may feel that one partner works far less than others but still expects the same share of the profits. A lot of consideration should be invested prior to forming a business partnership, looking at how you communicate and if you have the same vision for your business. A formal contract would be advisable for a number of aspects of the business, especially finance, to prevent any disagreements. A reputable accountant will help the partners to agree who makes which decisions, division of labour and contribution of capital. Formal agreements at this time can prevent more serious disagreements later on.
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