Guest post by Rhys, Paralegal, LawPath
What is a Partnership?
A partnership is a type of business structure. It is given effect through a Partnership Agreement which sets out the terms between two or more people to operate a business as ‘co-owners’ with a view to make profit.
This allows them to share the profit and liabilities of a business. Under this arrangement there is no separation of the partnership from the operating business.
It is not to be confused with the co-founders of a company where the the rights and liabilities of each co-founder are given effect through a Shareholders Agreement once the company has been registered. This is a contract that sets out the ownership and responsibilities of each co-founder.
Advantages of entering a Partnership
Entering a partnership to ease some of the burdens and frustrations of starting a business can be a tempting prospect. As partners, you would likely share outgoing costs, legal obligations and the day-to-day frustrations of starting a thriving business.
Just the thought of finding someone who shares your vision for the future of an industry can feel like the beginning stages of a romantic affair.
The rest of the world may not comprehend what your business does, or doubt it’s capacity to turn a profit long term, but this person seems to ‘get it.’
Such unions can be all the better when your business partner brings a unique skill set that you lack and complements your existing business structure. Whether it be tech genius meets sales master or top manager of everyday operations joins strategy expert.
Advantages of a partnership include:
- Share control over your business;
- Ability to combine your expertise with the complementary expertise of your partner;
- Cheaper setup costs;
- Keep business affairs of partners private;
- Ability to access a larger capital pool with increased borrowing capacity.
Disadvantages of a Partnership
But just like Romeo and Juliet, a partnership can just as easily set your business up to go down in flames.
The unfortunate truth is that you may find a partner that shares your vision in the beginning, but as time goes on your plans for the future of the business gradually diverge.
You may feel as though you’ve lost the control you once had over your business. No longer can you make a gut decisions exactly as you want without the need for consensus.
Disadvantages of a partnership can include:
- Each partner is liable for the other partner’s debt;
- The potential for conflicts between partners to cause risk to the business;
- Each partner is liable for the actions of their partner, whether beneficial or reckless.
Regardless, it is important to not let the initial sense of optimism you feel when you meet someone who shares your vision and wants to become your business partner get the best of you.
It’s important to really take the time to assess the character of the person you’re partnering with and how a fallout would influence your business. Does your business really need something specific that this person can bring, whether it be capital, a unique skillset or something else all together? Are you willing to let go of some of the control you have over your business?
A partnership can be the beginning of something wonderful, but it is important that you consider your decision very carefully.
If you’ve found somebody you want to partner with and you have decided that a ‘Partnership’ is the right direction for your business, LawPath can help you can create a Partnership Agreement in just a few minutes!
Rhys is a Paralegal at LawPath in their content team. Pursuing his interest in digital marketing and commercial law, he has completed a law degree at the University of New South Whales