Starting a new business venture can be challenging. How the business will be legally structured is one of the first decision you will have to make as a business owner. A business partnership is one of the common business structures you may consider when starting a business with two or more individuals. A business partnership is type of legal structure in which two or more individuals agreed to contribute resources to a shared fund and split the profits among themselves.
Entering into business partnership may sound appealing, but how do you know if this is the right business structure for you? Keep reading because we’ve talked to a business lawyer and put together the pros and cons of a business partnership that will help you see the bigger picture and make an informed decision.
Reduced Financial Burden.
Setting up a business partnership is usually less expensive than forming a corporation. Depending on the type of partnership, each partner equally shares the same responsibility to contribute capital to the partnership, making the financial burden among all partners manageable as the source of funds is not limited to one person.
Support and Encouragement.
The reality is that starting any kind of business is very difficult, especially during the first few years. The journey can sometimes be lonely as well. Having a business partners that provide moral support and encouragement can be very advantageous during the difficult times of your business. Alternatively, during the good times of your business, a business partners can be great for celebrating successes and goals that have been achieved.
Unlike in a sole proprietorship, the duties and responsibilities in a business partnership are equally shared by all the partners. In short, no business partnership can run based solely on the management and control of a single person.
This is another advantage of business partnership as growing the business is more manageable and less prone to mistakes because the business judgment is not limited to one person but to many. While it cannot be denied that there will come a point when differences in points of view may occur, all decisions can still be decided by a majority of all the partners, with the success of the business partnership as the main priority.
Broader Range of Expertise.
Another advantage of forming a business partnership is the individual expertise of each partner joining the business organization. Most successful business partnership owe their success to the wide range of skills and knowledge that each partner brings to the business. Assigning partners according to their forte also allows more room for the partnership to succeed as the partners can best utilize their own mastery, and skill for the furtherance of the business partnership.
Shared Business Decisions.
One of the essential characteristics of a partnership is that all business decisions are to be decided by the partners. This may not appear to be a disadvantage at first but once the partners encounter differences in opinion towards a decision, this could be a source of a dispute or in some cases, even the dissolution of the business partnership itself.
In managing a business partnership, disagreement among all partners is inevitable and should be handled properly to avoid business losses. Hence, if you are someone who is not comfortable sharing business decision-making, it is better to think twice or consult a business lawyer before entering into a business partnership. A business lawyer may be able to advice the partners on potential future issues and provide a resolution before a disputes arises.
No Separate Legal Personality.
Unlike a corporation, a partnership is not considered as a separate legal entity. This means that in a partnership, although it is sued under its name, the partners are not free from liability when the partnership’s assets and properties are not sufficient to comply with the order of the court. Hence, the partner’s personal properties may be subject to attachment or could be used as a payment for the business partnership’s expenses and debts. In case this concerns you, it’s better to become a limited partner or you may contact a business lawyer to understand and decide what business structure is best for you.