Getting to a business partnership has its benefits. It permits all contributors to share the stakes in the business enterprise. Depending upon the risk appetites of partners, a company can have a general or limited liability partnership. Limited partners are only there to provide funding to the business enterprise. They have no say in company operations, neither do they discuss the responsibility of any debt or other company obligations. General Partners operate the company and discuss its obligations too. Since limited liability partnerships require a great deal of paperwork, people usually tend to form general partnerships in businesses.
Facts to Think about Before Establishing A Business Partnership
Business partnerships are a excellent way to share your gain and loss with somebody who you can trust. However, a badly implemented partnerships can turn out to be a tragedy for the business enterprise. Here are some useful ways to protect your interests while forming a new company partnership:
1. Becoming Sure Of You Want a Partner
Before entering a business partnership with someone, you need to ask yourself why you need a partner. However, if you’re trying to make a tax shield to your enterprise, the general partnership would be a better choice.
Business partners should complement each other in terms of experience and techniques. If you’re a tech enthusiast, teaming up with a professional with extensive advertising experience can be quite beneficial.
Before asking someone to commit to your business, you need to understand their financial situation. If company partners have sufficient financial resources, they won’t require funding from other resources. This may lower a firm’s debt and increase the operator’s equity.
3. Background Check
Even in case you expect someone to become your business partner, there’s no harm in doing a background check. Asking two or three personal and professional references can provide you a fair idea in their work integrity. Background checks help you avoid any potential surprises when you start working with your business partner. If your company partner is used to sitting and you aren’t, you can split responsibilities accordingly.
It is a good idea to test if your spouse has any prior experience in running a new business enterprise. This will explain to you the way they performed in their previous jobs.
Make sure you take legal opinion prior to signing any partnership agreements. It is necessary to get a good understanding of each clause, as a badly written arrangement can force you to run into accountability issues.
You should make certain to add or delete any relevant clause prior to entering into a partnership. This is as it is awkward to create amendments once the agreement has been signed.
5. The Partnership Must Be Solely Based On Company Provisions
Business partnerships shouldn’t be based on personal connections or preferences. There should be strong accountability measures set in place in the very first day to track performance. Responsibilities must be clearly defined and executing metrics must indicate every individual’s contribution towards the business enterprise.
Having a poor accountability and performance measurement system is one of the reasons why many partnerships fail. As opposed to placing in their efforts, owners start blaming each other for the wrong decisions and resulting in business losses.
6. The Commitment Level of Your Company Partner
All partnerships start on favorable terms and with good enthusiasm. However, some people today lose excitement along the way due to everyday slog. Therefore, you need to understand the commitment level of your spouse before entering into a business partnership with them.
Your business associate (s) should have the ability to demonstrate exactly the same amount of commitment at every phase of the business enterprise. When they do not stay committed to the company, it is going to reflect in their job and could be injurious to the company too. The very best way to maintain the commitment amount of each business partner would be to establish desired expectations from every person from the very first day.
While entering into a partnership arrangement, you will need to get an idea about your partner’s added responsibilities. Responsibilities like caring for an elderly parent should be given due thought to establish realistic expectations. This gives room for compassion and flexibility in your job ethics.
This would outline what happens if a spouse wishes to exit the company. Some of the questions to answer in this scenario include:
How does the departing party receive reimbursement?
How does the branch of funds occur among the rest of the business partners?
Moreover, how will you divide the duties?
8. Who Will Be In Charge Of Daily Operations
Even when there’s a 50-50 partnership, somebody needs to be in charge of daily operations. Positions including CEO and Director need to be allocated to appropriate people including the company partners from the start.
This assists in establishing an organizational structure and further defining the functions and responsibilities of each stakeholder. When each person knows what is expected of him or her, then they’re more likely to perform better in their own role.
9. You Share the Same Values and Vision
Entering into a business partnership with somebody who shares the very same values and vision makes the running of daily operations much easy. You’re able to make significant business decisions fast and define long-term plans. However, sometimes, even the most like-minded people can disagree on significant decisions. In such cases, it is essential to keep in mind the long-term aims of the enterprise.
Business partnerships are a excellent way to share liabilities and increase funding when establishing a new business. To earn a business partnership successful, it is important to find a partner that will help you earn fruitful decisions for the business enterprise.