A business partnership is a legal relationship formed when two or more parties come together to operate a big venture, sharing profits and losses. A business partnership can be formed by individuals or by business entities like limited liability companies or corporations (LLC).
Business partnerships have to go through many stages, together the partners may accomplish the most difficult task or they might disagree with some ideas.
Advantages of Business Partnerships
A business partnership can be a good option for many reasons. There are many benefits involved in funding, taxation, division of labor, and knowledge.
- Access to Capital
The greatest advantage of having a business partner is the splitting of finances. Starting and running a business is a costly venture and when you share the financial responsibilities of a business with another individual or entity, you grow your business and make it successful. It ensures financial security to your business and increases your cash flow, and minimizes the stress of funding operations.
- Division of Labor
Dividing the laboring and responsibilities of your business increases your business efficiency and productivity allowing you to achieve more than you would alone. You can share day-to-day business decisions with your business partners and if you have any problem in your business, you have someone to consult with.
- Taxation
With partnerships, there are no additional business entity taxes and because of this you file and render taxes on your share of the business partnerships.
- Knowledge and Expertise
Every business owner brings unique skills and experiences to the table, so you can benefit from their knowledge and it is best to consider a business partner who excels in areas in which you are lacking. It is ideal to partner with a seasoned business owner if you are a first-time entrepreneur who can help in guiding the business.
Disadvantages of Business Partnership
Managing a business with someone else is not always easy, and if you are not prepared properly it can move your business to a terrible end. There are a few precautions you should take care of in the business.
- Informal Arrangement
Don’t only make verbal agreements but also have a written agreement to ensure security in a business partnership. Not making a clear agreement about the percentage of ownership, liability, and responsibility can pause the process of partnership and you might have to wait for a longer time to set up this partnership.
- Partner Liability
You might be liable for the mistake that your partner makes in the business depending on the type of partnership you enter. You might have to be personally responsible for your partner’s fault in the business.
Liability is a vital factor in the business partnership, so you must trust your business partner and enter a partnership that is suitable for your business and your interests.
- Lower Percentage of Profit
A business partnership may not yield that much result as you expected and you might face loss in your business. Also, when you are dividing the labor you have to divide the profit of your business depending on the share of ownership. You must have to agree with the sharing of your business income.
- Conflicting Ideas
If you and your partner have dissimilar work ethics or have a different point of view every time which you are unable to resolve then your business is going to suffer. This is true especially when business partners are family members, friends, or relatives where your problems can interfere with professional judgment.
When you run a business with someone else, you have to listen to their opinions and ideas. The ideas might be conflicting with your stubborn ideas but you have to be practically unbiased to make the best decisions for leading your business ahead successfully.
