Getting into a business partnership has its benefits. It allows all contributors to split the stakes in the business enterprise. Limited partners are just there to give financing to the business enterprise. They have no say in company operations, neither do they share the duty of any debt or other company obligations. General Partners operate the company and share its obligations as well. Since limited liability partnerships call for a lot of paperwork, people tend to form overall partnerships in businesses.
Things to Consider Before Setting Up A Business Partnership
Business partnerships are a great way to share your profit and loss with somebody who you can trust. But a badly implemented partnerships can prove to be a tragedy for the business enterprise. Here are some useful ways to protect your interests while forming a new company partnership:
1. Being Sure Of You Want a Partner
Before entering into a business partnership with someone, you need to ask yourself why you want a partner. But if you’re working to create a tax shield for your business, the overall partnership would be a better option.
Business partners should match each other concerning expertise and skills. If you’re a technology enthusiast, then teaming up with a professional with extensive marketing expertise can be quite beneficial.
2. Understanding Your Partner’s Current Financial Situation
Before asking someone to commit to your business, you need to understand their financial situation. When starting up a company, there may be some amount of initial capital needed. If company partners have enough financial resources, they won’t require funds from other resources. This will lower a firm’s debt and boost the operator’s equity.
3. Background Check
Even in case you expect someone to become your business partner, there’s not any harm in doing a background check. Asking a couple of personal and professional references may give you a reasonable idea about their work ethics. Background checks help you avoid any future surprises when you begin working with your business partner. If your company partner is used to sitting late and you aren’t, you can divide responsibilities accordingly.
It’s a good idea to test if your partner has any previous knowledge in running a new business venture. This will tell you how they performed in their previous jobs.
Make sure that you take legal opinion before signing any partnership agreements. It’s important to get a good comprehension of each clause, as a badly written arrangement can force you to encounter liability issues.
You need to be certain to add or delete any appropriate clause before entering into a partnership. This is as it is awkward to make amendments after the agreement has been signed.
5. The Partnership Must Be Solely Based On Business Provisions
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 monitor performance. Responsibilities should be clearly defined and performing metrics should indicate every individual’s contribution towards the business enterprise.
Possessing a weak accountability and performance measurement process is just one of the reasons why many partnerships fail. Rather than placing in their attempts, owners begin blaming each other for the wrong decisions and resulting in business losses.
6. The Commitment Amount of Your Business Partner
All partnerships begin on friendly terms and with good enthusiasm. But some people eliminate excitement along the way as a result of everyday slog. Therefore, you need to understand the dedication level of your partner before entering into a business partnership together.
Your business associate (s) need to have the ability to demonstrate exactly the same amount of dedication at every stage of the business enterprise. When they do not remain committed to the company, it will reflect in their work and can be detrimental to the company as well. The best way to keep up the commitment amount of each business partner is to establish desired expectations from every person from the very first day.
While entering into a partnership arrangement, you will need to get some idea about your partner’s added responsibilities. Responsibilities such as caring for an elderly parent ought to be given due thought to establish realistic expectations. This gives room for compassion and flexibility in your work ethics.
7. What Will Happen If a Partner Exits the Business
The same as any other contract, a business venture requires a prenup. This would outline what happens in case a partner wishes to exit the company.
How will the exiting party receive reimbursement?
How will the branch of funds occur among the remaining business partners?
Moreover, how will you divide the responsibilities?
8. Who Will Be In Charge Of Daily Operations
Even if there’s a 50-50 partnership, somebody has to be in charge of daily operations. Areas such as CEO and Director need to be allocated to appropriate individuals including the company partners from the start.
When each person knows what is expected of him or her, then they’re more likely to work better in their role.
9. You Share the Very 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 important business decisions fast and establish long-term strategies. But occasionally, even the very like-minded individuals can disagree on important decisions. In such scenarios, it is essential to keep in mind the long-term goals of the business.
Business partnerships are a great way to discuss obligations and boost financing when establishing a new business. To make a company venture effective, it is crucial to find a partner that can help you make profitable decisions for the business enterprise.