Starting a small business is a great idea and going into a business partnership with someone who shares your vision can enhance your chances of realizing your business dreams. But there is a caution. Except you take the trouble to prudently look at all angles of the business partnership arrangement before you get into it, you may invest a lot of money and time before you discover that the arrangement is not working.
However, here are some of the things that small business owners may need to consider before contemplating a business partnership with someone if your dream of a ‘perfect’ small business is to be realized.
Like other forms of relationship, a successful small business partnership requires long-term compatibility. Those in a partnership need to share similar values and long-term vision for the business. Although they do not need to agree on practically everything, they must be at least on the same page with their goals and expectations.
2. Written goals
There is a great need to have a set of mutually agreed goals and long-term expectations. One way of doing this is to have each person put on paper individual goals and expectations and then come together to compare notes. This may throw up areas of potential conflict but it will certainly identify areas of common ground. Those areas of potential conflict can be discussed and straightened out before proceeding further.
3. Skills and resources
It is highly important to establish that you and the others are going into the arrangement for the right reasons. Some business ventures can be run satisfactorily as a sole entrepreneur, so it is necessary to carefully consider the necessity for additional skills or resources each person will be contributing to the arrangement before venturing into the partnership. If a partnership arrangement will make the business more successful than being a sole entrepreneur then it may be well worth going into establishing one.
The commitment of each individual should also be well defined and documented. Without doing so, what may initially appear to be minor or inconsequential differences could eventually lead to major disagreements. For example, it is necessary to explicitly define the roles and responsibilities of each person and how much time every individual will be committing to running the business.
Types of Business Partnership
There are various types of business partnership structures, but the most important thing is to choose a structure that fits the long-term goals and objectives of the business. An important consideration here is to establish that the venture lends itself satisfactorily to a business partnership arrangement. It is vital to engage the services of a business lawyer at this stage to help in drawing up a partnership agreement. This will establish a legal structure for the business and further define the roles and personal liabilities of individual members.
1. General business partnership
This is a basic form of association established between two or more individuals to run a jointly-owned business with an agreement to share assets and liabilities of the business. This business partnership structure is simple to operate as it enables all the partners to participate in various aspects of the business. It, however, provides very little protection from liability as everyone takes mutual responsibility for all liabilities arising from the business.
2. Limited business partnership
This is similar to the general business partnership, but as the name suggests, at least one person should be a limited partner. This type of arrangement is more suitable in situations where one or more persons are only financial members who have limited involvement in the daily operations of the business. With this form of arrangement, the limited business partnership provides limited liability against the losses and debts of the business.
3. Incorporated limited partnership
An incorporated limited partnership is a legal entity on its own. It is an arrangement that enables the members to hold a specific level of personal liability for the business. The attraction for a small scale business is that every individual is protected from having total responsibility for the liabilities of the business and so may not be held personally responsible for any wrongful acts committed by others. Everyone has the authority to make decisions about the running of the business but this may become a cog in the wheel of progress where multiple business partners with different shades of opinion are engaged in making decisions.
Small businesses must consider the suitability of a business partnership arrangement for the achievement of the long-term goals of their venture before establishing a partnership. Also, they must ensure that those they are forming partnerships with are coming into the arrangement for the right reasons and that they have resources or special skills they are bringing to the table. A business lawyer should be engaged to draw up a business partnership agreement so that the business may run without difficulties.