Getting into a business partnership has its own benefits. It allows all contributors to share the stakes in the business. Based upon the risk appetites of partners, a business may have a general or limited liability partnership. Limited partners are only there to give financing to the business. They have no say in business operations, neither do they share the duty of any debt or other business duties. General Partners operate the business and share its obligations as well. Since limited liability partnerships require a lot of paperwork, people tend to form overall partnerships in companies.
Facts to Consider Before Setting Up A Business Partnership
Business partnerships are a excellent way to share your gain and loss with somebody you can trust. However, a badly implemented partnerships can turn out to be a disaster for the business. Here are some useful methods to protect your interests while forming a new business partnership:
1. Becoming Sure Of You Want a Partner
Before entering into a business partnership with a person, you need to ask yourself why you want a partner. If you’re seeking only an investor, then a limited liability partnership ought to suffice. However, if you’re working to make a tax shield for your enterprise, the overall partnership would be a better option.
Business partners should match each other in terms of expertise and skills. If you’re a technology enthusiast, teaming up with a professional with extensive marketing expertise can be quite beneficial.
Before asking someone to dedicate to your business, you need to comprehend their financial situation. If business partners have sufficient financial resources, they will not need funds from other resources. This will lower a firm’s debt and increase the owner’s equity.
3. Background Check
Even in case you expect someone to be your business partner, there is not any harm in doing a background check. Asking two or three personal and professional references may give you a fair idea in their work ethics. Background checks help you avoid any future surprises when you start working with your business partner. If your business partner is used to sitting late and you aren’t, you can split responsibilities accordingly.
It is a great idea to check if your spouse has any prior experience in running a new business venture. This will explain to you how they performed in their past endeavors.
4. Have an Attorney Vet the Partnership Documents
Ensure that you take legal opinion before signing any partnership agreements. It is important to have a good understanding of each policy, as a badly written agreement can force you to run into liability issues.
You need to be certain to delete or add any relevant clause before entering into a partnership. This is as it’s awkward to create alterations once the agreement has been signed.
5. The Partnership Should Be Solely Based On Company Terms
Business partnerships should not be based on personal connections or preferences. There ought to be strong accountability measures put in place in the very first day to track performance. Responsibilities must be clearly defined and performing metrics must indicate every individual’s contribution towards the business.
Having a weak accountability and performance measurement system is just one of the reasons why many partnerships fail. Rather than putting in their efforts, owners start blaming each other for the wrong choices and resulting in company losses.
6. The Commitment Amount of Your Company Partner
All partnerships start on favorable terms and with great enthusiasm. However, some people eliminate excitement along the way as a result of everyday slog. Consequently, you need to comprehend the dedication level of your spouse before entering into a business partnership together.
Your business partner(s) need to have the ability to show exactly the same level of dedication at every stage of the business. When they don’t remain dedicated to the business, it is going to reflect in their work and can be detrimental to the business as well. The best approach to maintain the commitment level of each business partner is to set desired expectations from every individual from the very first day.
While entering into a partnership agreement, you need to have an idea about your spouse’s added responsibilities. Responsibilities like caring for an elderly parent ought to be given due consideration to set realistic expectations. This gives room for compassion and flexibility in your work ethics.
7. What’s Going to Happen If a Partner Exits the Business
The same as any other contract, a business venture takes a prenup. This would outline what happens in case a spouse wishes to exit the business.
How does the exiting party receive reimbursement?
How does the division of resources occur one of the remaining business partners?
Also, how are you going to divide the responsibilities?
8. Who Will Be In Charge Of Daily Operations
Areas such as CEO and Director need to be allocated to appropriate people such as the business partners from the start.
This helps in creating an organizational structure and additional defining the functions and responsibilities of each stakeholder. When each individual knows what’s expected of him or her, then they are more likely to perform better in their role.
9. You Share the Same Values and Vision
Entering into a business partnership with somebody who shares the same values and vision makes the running of daily operations considerably simple. You can make important business decisions quickly and define long-term strategies. However, sometimes, even the most like-minded people can disagree on important decisions. In such cases, it’s vital to keep in mind the long-term goals of the enterprise.
Business partnerships are a excellent way to share liabilities and increase financing when establishing a new small business. To make a business partnership effective, it’s important to find a partner that will allow you to make profitable choices for the business. Thus, look closely at the above-mentioned integral aspects, as a feeble spouse (s) can prove detrimental for your new venture.