Getting into a business venture has its benefits. It allows all contributors to share the stakes in the business. Based upon the risk appetites of spouses, a company can have a general or limited liability partnership. Limited partners are only there to give financing to the business. They’ve no say in company operations, neither do they share the responsibility of any debt or other company obligations. General Partners operate the company and share its liabilities as well. Since limited liability partnerships require a lot of paperwork, people usually tend to form general partnerships in businesses.
Things to Think about Before Establishing A Business Partnership
Business partnerships are a excellent way to share your gain and loss with somebody you can trust. However, a badly implemented partnerships can turn out to be a tragedy for the business. Here are some useful ways to protect your interests while forming a new company venture:
1. Being Sure Of Why You Need a Partner
Before entering a business partnership with someone, you have to ask yourself why you need a partner. However, if you’re trying to create a tax shield to your business, the general partnership could be a better choice.
Business partners should match each other concerning expertise and techniques. If you’re a technology enthusiast, teaming up with an expert with extensive marketing expertise can be very beneficial.
Before asking someone to commit to your business, you have to understand their financial situation. If company partners have sufficient financial resources, they will not require funds from other resources. This may lower a firm’s debt and boost the operator’s equity.
3. Background Check
Even in case you trust someone to be your business partner, there’s not any harm in doing a background check. Calling a couple of personal and professional references can give you a fair idea in their work integrity. Background checks help you avoid any future surprises when you start working with your business partner. If your company partner is accustomed to sitting late and you aren’t, you are able to divide responsibilities accordingly.
It is a great idea to test if your partner has some previous knowledge in running a new business venture. This will tell you how they performed in their previous jobs.
4. Have an Attorney Vet the Partnership Documents
Make sure you take legal opinion before signing any venture agreements. It is important to get a good comprehension of each clause, as a badly written arrangement can make you run into liability issues.
You should be certain to delete or add any appropriate clause before entering into a venture. This is because it is awkward to create amendments once the agreement has been signed.
5. The Partnership Must Be Solely Based On Business Terms
Business partnerships shouldn’t be based on personal connections or tastes. There should be strong accountability measures set in place in the very first day to monitor performance. Responsibilities should be clearly defined and performing metrics should indicate every person’s contribution to the business.
Possessing a weak accountability and performance measurement process is just one of the reasons why many partnerships fail. As opposed to placing in their attempts, owners start blaming each other for the wrong decisions and resulting in company losses.
6. The Commitment Level of Your Business Partner
All partnerships start on friendly terms and with great enthusiasm. However, some people eliminate excitement along the way as a result of everyday slog. Consequently, you have to understand the commitment level of your partner before entering into a business partnership with them.
Your business associate (s) should be able to demonstrate the same amount of commitment at every phase of the business. If they don’t remain committed to the company, it is going to reflect in their work and can be detrimental to the company as well. The best approach to maintain the commitment amount of each business partner would be to set desired expectations from every individual from the very first moment.
While entering into a partnership arrangement, you need to get some idea about your partner’s added responsibilities. Responsibilities such as caring for an elderly parent should be given due consideration to set realistic expectations. This provides room for empathy and flexibility in your work ethics.
7. What Will Happen If a Partner Exits the Business Enterprise
This could outline what happens if a partner wishes to exit the company.
How will the exiting party receive compensation?
How will the division of funds occur one of the remaining business partners?
Moreover, how will you divide the duties?
Even if there’s a 50-50 venture, somebody has to be in charge of daily operations. Positions including CEO and Director have to be allocated to appropriate individuals such as the company partners from the beginning.
This helps in creating an organizational structure and additional defining the roles and responsibilities of each stakeholder. When each individual knows what’s expected of him or her, they are more likely to perform better in their own role.
9. You Share the Very Same Values and Vision
Entering into a business venture with somebody who shares the very same values and vision makes the running of daily operations much easy. You can make significant business decisions fast and define longterm strategies. However, sometimes, even the most like-minded individuals can disagree on significant decisions. In these cases, it is vital to remember the long-term aims of the business.
Business partnerships are a excellent way to share liabilities and boost financing when setting up a new business. To earn a company venture successful, it is crucial to get a partner that can allow you to earn profitable decisions for the business. Thus, look closely at the above-mentioned integral aspects, as a feeble partner(s) can prove detrimental for your new venture.