A business partnership is a joint business venture between two or more partners. The agreement may be formal or informal, depending upon the needs and interests of the parties. Business partnership plays a vital role in expertise, financing, and labor division involved in any business. While starting any business, you may be pessimistic about whether you should go for a partnership or not. There are various advantages as well as disadvantages associated with business partnership deals. The partnership term may take many forms and shapes. Thus you should go for a partnership based on written agreements as well as precise terms.
According to Eric Dalius, there are different types of partnerships in operation in the present scenario. They include a limited liability company partnership, a general partnership, a limited liability partnership, and a limited partnership. Each of these partnerships has its pros and cons that you must know in detail. As an entrepreneur, it is your responsibility to go for a specific kind of collaboration only after detailed research and a proper understanding of any partnership.
The possible pros of business partnership
- The access to capital:the first and probably the most important advantage of going into a business partnership is the division of finances. For any scenario, the division of responsibility can help you overcome the stress and anxiety associated with that area. Remarkably when you talk of financial obligation, experts always advise to share it with someone responsible. While starting and running any business, it requires a good deal of expenses. If you have a reliable partner with whom you can share the business’s responsibility, then you will be able to gain ground quickly. According to Eric J Dalius, going for business partners can help increase financial security and the cash flow of the business. You should thus make efforts to lower the level of stress that may be caused by funding your operations.
- The benefits regarding taxation:the second advantage of a partnership is related to taxation. For most businesses, the taxes depend on pass-through entities. Depending on your share of business ownership, you will get taxed accordingly. It will help to reduce the burden of paying taxes for the entire venture single-handedly. Nobody likes to pay an extra penny in this highly competitive world. Hence going for a partnership can help you to cut down on your taxation.
- The division of Labour force: With partners, you can divide finances along with the labor force. The division of responsibilities and duties can help you become more efficient and productive in the long run. The division of labor can help you channelize your energies in the right direction and focus on your goal. It can help you to accomplish more than what you could do alone. EJ Dalius tries to draw the readers’ attention towards this exact dimension explaining the significance of the partnership.
- The expertise and knowledge: every business entrepreneur brings unique experiences and skills regarding the business. You can try to benefit from the expertise and knowledge of your partner or partners. There are areas where you may be lacking the proper knowledge and where your partner can help you with the right amount of expertise.
The cons related to business partnership
- The disadvantage of informal agreements: No business expert recommends entering into informal agreements with business partners. There are two types of arrangements in business, and they are formal agreements and informal agreements. When you have decided to enter into a partnership via verbal agreements or informal agreements, make it simple. However, it is not always the best decision to take. A written agreement has a lot of advantages associated with it. Here you can dictate the terms in detail about ownership percentage, responsibility division, liability, and many vital areas.
- The percentage of profit may decrease: running a business singlehandedly can help you get complete control of the company. In this scenario, you will have full control over the profit and the losses. You will be in an advantageous position in the former condition if you do not go for a partnership. In the case of partnered firms, you will have to divide the profit following the ownership percentage. The more the number of partners, the lesser is the amount of profit earned.
- The fear of conflict: human nature is very ambiguous. There is the chance of coming into differences of opinion that may result in an altercation with your partner. The differences of opinion sometimes may lead to such chaos that may be difficult to solve for the parties involved. Running a business singlehandedly may reduce the risk of any conflict and disagreement. So you will have to keep this aspect in mind as well.
- The liability of the partner: any business runs on the responsibility and liability factor. However, depending on the kind of business partnership that you have, you will be responsible for every action of yours. Sometimes you may be answerable to other people regarding the mistakes that your partner might have committed. Liability hence is considered to be a prime factor in a business partnership. Therefore it is your responsibility to get hold of a trustworthy person and enter into a partnership to protect your vested interest.
The above-given points reveal in detail the various pros and cons associated with the concept of business partnership. In the present market scenario, the business partner’s operation has become an inseparable part of business dynamics. There are a lot of factors that go into the decision-making of a business partnership.
As an entrepreneur, it falls on you to decide whether you would go for a business partnership or not. Before taking any such decision, consider the above-given points that will properly guide you to reach an appropriate conclusion. You must enter into a business partnership only when you have weight advantages and disadvantages properly. Only when you work rationally it can help you get the desired results from your business endeavor.