Getting into a business partnership has its benefits. It allows all contributors to share the stakes in the business. Depending upon the risk appetites of partners, a company may have a general or limited liability partnership. Limited partners are just there to provide funding to the business. They’ve no say in company operations, neither do they share the responsibility of any debt or other company duties. General Partners function the company and share its obligations as well. Since limited liability partnerships require a lot of paperwork, people usually tend to form general partnerships in companies.
Facts to Think about Before Setting Up A Business Partnership
Business partnerships are a excellent way to share your profit and loss with someone who you can trust. However, a poorly executed partnerships can turn out to be a tragedy for the business.
1. Being Sure Of Why You Want a Partner
Before entering a business partnership with a person, you need to ask yourself why you need a partner. If you’re seeking only an investor, then a limited liability partnership should suffice. However, if you’re trying to create a tax shield to your enterprise, the general partnership could be a better option.
Business partners should match each other in terms of experience and techniques. If you’re a tech enthusiast, then teaming up with a professional with extensive marketing experience can be very beneficial.
Before asking someone to commit to your organization, you need to comprehend their financial situation. If company partners have sufficient financial resources, they will not require funds from other resources. This may lower a firm’s debt and increase the operator’s equity.
3. Background Check
Even in case you trust someone to become your business partner, there is no harm in doing a background check. Calling a couple of personal and professional references may provide you a reasonable idea in their work ethics. Background checks help you avoid any future surprises when you begin working with your organization partner. If your company partner is accustomed to sitting late and you aren’t, you are able to divide responsibilities accordingly.
It’s a good idea to check if your spouse has some prior experience in conducting a new business enterprise. This will tell you how they completed in their previous jobs.
Ensure you take legal opinion prior to signing any partnership agreements. It’s important to get a good understanding of each policy, as a poorly written arrangement can make you encounter liability problems.
You need to make sure to delete or add any relevant clause prior to entering into a partnership. This is because it’s cumbersome to create alterations once the agreement was signed.
5. The Partnership Should Be Solely Based On Business Provisions
Business partnerships should not be based on personal relationships 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 person’s contribution to the business.
Having a poor accountability and performance measurement process is one reason why many partnerships fail. Rather than putting in their attempts, owners begin blaming each other for the wrong choices and resulting in company losses.
6. The Commitment Amount of Your Business Partner
All partnerships begin on friendly terms and with good enthusiasm. However, some people lose excitement along the way due to regular slog. Therefore, you need to comprehend the commitment level of your spouse before entering into a business partnership with them.
Your business associate (s) need to have the ability to demonstrate the exact same amount of commitment at every phase of the business. If they don’t stay dedicated to the company, it is going to reflect in their job and could be detrimental to the company as well. The best way to maintain the commitment amount of each business partner is to establish desired expectations from every individual from the very first day.
While entering into a partnership arrangement, you will need to get an idea about your spouse’s added responsibilities. Responsibilities such as caring for an elderly parent should be given due thought to establish realistic expectations. This gives room for compassion and flexibility on your job ethics.
7. What Will Happen If a Partner Exits the Business
The same as any other contract, a business enterprise takes a prenup. This could outline what happens if a spouse wants to exit the company. Some of the questions to answer in this scenario include:
How does the departing party receive reimbursement?
How does the division of resources occur among the remaining business partners?
Also, how are you going to divide the duties?
8. Who Will Be In Charge Of Daily Operations
Even if there is a 50-50 partnership, someone has to be in charge of daily operations. Areas such as CEO and Director need to be allocated to suitable individuals including the company partners from the start.
When each person knows what is expected of him or her, they are more likely to work better in their own role.
9. You Share the Same Values and Vision
You’re able to make significant business decisions quickly and establish longterm plans. However, occasionally, even the very like-minded individuals can disagree on significant decisions. In such scenarios, it’s essential to keep in mind the long-term goals of the enterprise.
Business partnerships are a excellent way to share liabilities and increase funding when establishing a new business. To make a company venture effective, it’s important to find a partner that will allow you to make fruitful choices for the business.