Entering a business partnership could be the best or worst decision you have ever made. Much depends on the size of your business, your financial situation, who your partner is, and much more. Therefore, before you take the plunge, you should weigh out the possible advantages and disadvantages of what a business partnership could mean to you and your business.
What Are the Advantages of a Business Partnership?
It is time to expand your business, but you have neither the cash nor the borrowing power to take your business to the next level. By entering into a business partnership, you could accomplish what you envision.
Adding a partner could give you more cash and credit to expand. It also gives you someone with whom you can share the financial burden. Of course, adding more knowledge and expertise to the business is always a plus, and adding to your list of contacts can help you as well.
A partnership brings with it another perspective, not to mention a support system that might otherwise not exist. Perhaps the best advantage of a partnership is the tax advantages. Although a partnership will have to file income, gains, losses, and deductions, it allows the taxes to move through the business and onto the individual partners. The partners, in turn, will claim the profits and losses on their personal tax forms.
Although a business partnership can help you expand, there are disadvantages to consider. In a general partnership, your decision making is no longer your own. Although a partner shares the financial burden with you, profits are also shared. Moreover, you are responsible for your partner’s debts and bad decision-making.
A possible conflict of interest is especially important to consider. Having different opinions about how the company will operate going forward is often a problem and could create unwanted tension. The idea of expanding or selling the business, for instance, could become an inextricable web of complications.
What Types of Business Partnerships Should I Consider?
There are different types of business partnerships. The most basic is a general business partnership. The owners, according to each percentage owned, most commonly 50 percent, share profits and losses, as well as any debts, liabilities, etc.
A limited partnership is best for businesses with one main owner, having co-owners with a smaller stake and/or say. A limited liability company partnership (LLC) helps to protect owners’ personal assets in case of a lawsuit. A limited liability partnership (LLP) is designed to exempt individual owners from the business debts and irresponsible actions of co-owners.
What Is Good Advice to Consider Before Entering into a Business Partnership?
Carefully consider whether or not you really need a partner. Think critically about the most obvious issues. You will not only be giving up full ownership, but you will also have to include a partner in every decision, one way or another. In other words, despite the type of partnership it is, you will have to answer to someone in some way about the operations of the business.
If you decide adding a partner is a must, carefully choose your partner, and do not be in a hurry to do so. Be certain that you are both on the same page in regard to every aspect of the business, from operations to expansion.
Another important element to consider is adding someone who can complement you. For instance, choose someone who has a different skill set. Most importantly, take the time to have a detailed partnership agreement made up.
An exit agreement, for instance, is critical. You should also determine how to allocate profits, share losses, and resolve disputes. Remember that without a carefully-constructed agreement, your business will have to follow the default rules of your state in the case of a dispute between you and your partner[s].
Philadelphia Business Lawyers at Sidkoff, Pincus & Green Represent Business Owners Who Need Help with Business Contracts or Disputes.
If you need help with a business contract or any issue regarding your business, having a competent lawyer will make all the difference. To help you in any business matter, speak with our experienced Philadelphia business lawyers at Sidkoff, Pincus & Green. Call us at 215-574-0600 or contact us online for a free consultation. Located in Philadelphia, we serve clients throughout Pennsylvania and New Jersey.