Starting a business with a partner affords many benefits. In a perfect world, that means sharing the expenses, ideas, workload, responsibilities, and profits. In the real world, it can mean personal liability for the partnership’s activity, emotional ups and downs, personality conflicts, and differing ideas.
What Is a Partnership?
There are three standard types of legal entities called partnerships. You must register with the business agency in your state for any of them.
- General Partnership.
Each partner shares equally in the profits, liability, and responsibilities involved in running the business. Unequal partnerships are also available, in which different percentages are assigned to each partner.
- Limited Partnership.
Also called partnerships with limited liability, each partner has both limited liability and limited input on company decisions. Limits are defined based on the percentage each partner has invested and are often preferred for short-term projects.
- Joint Ventures.
A joint venture lasts for a particular period or the duration of a single project. These can merge into a regular, ongoing partnership.
Benefits of a Partnership
Having a partner can be the difference between starting a business or letting it stay a dream. Benefits include:
- Sharing the workload, decision making, and expenses.
- Multiple perspectives on running the business.
- Leveraging the strengths and skillsets of each partner.
- Gaining specific skills, such as marketing, operations or finance.
- Shared accountability.
- Expanded business social network.
- A wider pool of financing options.
Drawbacks of a Partnership
Choosing the right partner is key:
- Work ethic: one meets deadlines, the other is more casual about it; one follows through, the other doesn’t.
- Level of experience: one has years in the field, the other has enthusiasm but little training.
- Plans for the business: one is in for the long haul, the other wants to sell quickly.
- Liability issues: if one partner violates the law, both are liable.
- Reputation: the reputation of one can impact the other’s reputation.
Don’t enter a partnership for the wrong reasons, like needing a yes man or wanting someone to run the business for you.
Forming a business partnership is a significant decision. So is choosing a partner. Choose someone you trust who adds additional skills to your business and has a personality that meshes well with yours. Most productive, successful partnerships have that formula in common.