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The Pros and Cons of Starting a Partnership

There are several components required to properly form a partnership.

  • Firstly, the intentions of all the parties involved need to be clearly stated in writing.
  • Secondly, the manner in which the profits or losses are shared amongst the partners also needs to be documented.
  • Thirdly, the administration and control of business operations detailing what the responsibilities of each partner will be must also be recorded.
  • Fourthly, the capital investment made by each partner must be documented.
  • Lastly, the percentages of ownership must be stated so it is clear what percentage of the business each partner owns.

Partnerships, like any business organization, have benefits and drawbacks that need to be understood by all parties.

Benefits of Starting a Partnership

There are many benefits to starting a partnership. To begin with, a partnership does not require complex paperwork and there are no special requirements by the government to set it up. In fact, the parties involved simply need to sign a partnership agreement to get their business started.

Partnerships are flexible and can be adapted to the management style and capabilities of the partners. This allows a business to divide and assign projects to partners based on their expertise, creating a much more efficient approach to managing the various aspects of the business.

Partnerships also create an atmosphere of teamwork since all parties involved have a vested interest in the success of the business. This can be very effective when developing strategies and ideas to grow and operate the business. Partnerships allow for a variety of ideas during the decision-making process and this is a definite benefit over one person doing it on their own. There is also the added benefit of increased capital investment from each partner which can aid in the crucial period when starting the business.

Drawbacks of Starting a Partnership

The main disadvantage of a partnership is that it is not a separate, legal identity from its members. All the partners in the business are responsible both legally and financially for the entirety of the business. Each partner has the legal ability to act on behalf of the business as a whole, and if one partner should act recklessly, the other partners are liable to that action. Financially, a partnership is not a legal entity on its own and cannot be taxed as such, so the individual partners are taxed individually based upon their share of the profits. This is a disadvantage since businesses are taxed at lower rates than individuals.

When deciding which type of business organization is right for you, take into consideration all the pros and cons of each one. While a partnership might not be ideal for everyone, it has advantages that other business structures simply do not. As long as the drawbacks are understood and can be worked around, a partnership can be an effective and lucrative business arrangement.

How to Create a Partnership Agreement

Are you ready to form a partnership? Use our partnership agreement form to create the legal document that you need and create your partnership agreement with ease.