What Is A Business Partnership?
Thinking of joining forces with another business? Before you go and shake hands to seal the deal, you should consider the pros and cons of making such a decision. After all, not knowing what you don't know can hurt you.
Making a decision to partner with another business can be one of the most rewarding decisions that you make. However, it also has its downsides and potential for failure. You should think about your company's strengths and weaknesses, as well as those of the other company. You will need to determine if there is a good fit between the two businesses before moving forward.
But before all of that, it'd be wise to familiarize yourself with what a business partnership is and can look like.
Partnerships in the Business Sphere
A business partnership is a formal agreement between two or more individuals or entities who agree to work together to achieve specific business goals. The partners in a business partnership share the profits, losses, and liabilities of the business. In order for a partnership to succeed, each of the businesses involved must be engaged and should understand their respective responsibilities.
Types of Partnerships
There are several different types of business partnerships, each with its own advantages and disadvantages. The most prevalent business partnerships are general partnerships, limited partnerships, and limited liability partnerships.
The most common type of business partnership is the limited partnership (LP). In an LP, there are two types of partners: general partners and limited partners. The general partners are responsible for running the business and have unlimited liability for the debts and obligations of the partnership. The limited partners have limited liability and are not involved in the day-to-day operations of the business.
General Partnerships (GPs)
This business structure is often the go-to for multi-owner businesses. It facilitates equal personal responsibility, and protection for personal assets. Although, personal assets are not shielded from legal claims or debts acquired by the business. Taxes are paid on profits at the personal level as well.
Limited Partnerships (LPs)
While similar in structure to a GP, with an LP, as mentioned before, limited partners are not immersed in the everyday tasks of the business. This arrangement is ideal for businesses with high startup costs or that call on multiple parties to invest. In this scenario, partners only share in losses and liabilities to the degree of the stakes they have in the company.
Another type of business partnership is a joint venture. In a joint venture, the partners share the profits and losses equally. This type of partnership is often used for short-term projects or ventures.
If you're looking to access new markets, tap into complementary skill sets, or combine resources - this may be the route for you. However, what differentiates this type of partnership from the rest is that while there's a degree of collaboration to it, it still offers independence. There are no legal responsibilities between you and your partner(s) beyond the scope of the joint venture.
Which One Is Best?
The best type of business partnership depends on the business goals, the partners involved, and the legal and tax implications. Before entering into a business partnership, it is important to consult with an attorney or accountant to discuss the pros and cons and to determine which type of partnership is right for your business.
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