Is a ‘Partnership’ Right for my Business?
Choosing the best structure for your business is an important decision. Read this article to find out whether a partnership structure is right for you.
Choosing the best structure for your business is an important decision. Whether it be a Sole Trader, Partnership or Company, each structure has different advantages and disadvantages and it is crucial that you consider the specific needs of your business in making this decision. Though your business structure isn’t set in stone, it is ideal to choose the best structure from the start to avoid excessive administrative costs and to maximise the effectiveness of your business.
What is a Partnership?
A partnership is an agreement between 2 or more people to operate a business as contractual (and legal) co-owners with a view to make and share profit. If you would like to know more about the nature, advantages and disadvantages of Partnerships, then click here.
When is a Partnership right for you?
A Partnership may be right for you when you:
- Want to share control and management of your business with your potential partners;
- Trust that you will have a positive professional relationship with your potential partner;
- Believe your potential partner shares your goals and objectives and are equally committed to the success of the business;
- Believe that potential conflicts or disagreements may be avoided or mitigated to an acceptable level;
- Want to set up your business structure cheaply and easily;
- Want to combine the resources and expertise of your potential partner and bounce ideas off your potential partner at the highest level of the business;
- You don’t mind sharing the profits of a business with your potential partner;
- Require an increased borrowing capacity or greater access to capital.
When is a Partnership NOT right for you?
A Partnership may not be right for you if you:
- Believe personality conflicts or disagreements between partners can cause problems and risk to the business;
- Do not want to be liable for the actions of other partners;
- Believe your partner will not pay their share of the partnership debt and do not wish to be liable for their share of the partnership debt.
What type of Partnership best suits your business needs?
If you decide that a Partnership is the best structure for your business, then the next important consideration is which type of Partnership is the most appropriate for your business.
There are 2 different types of partnerships: General Partnership; and Limited Partnership.
A General Partnership is a partnership where all partners have unlimited liability for incurred debts and obligations. A general partnership would be the best business structure to:
- Share management, control and decision-making of the company with your partners;
- Ensure equal and unlimited liability amongst partners.
A Limited Partnership is a partnership where one or more partners have limited liability for incurred debts and obligations. It consists of one or more general partner along with an unlimited number of limited partners. A limited partnership would be the best business structure to:
- Maintain management, control and decision-making of your business;
- Establish a separation between general partners (with unlimited liability and decision-making authority) and limited partners (limited liability and no decision-making authority).
If you believe a ‘Partnership’ is the right structure for your business, you can create a Partnership Agreement now!
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William is a Paralegal, working in our content team, which aims to provide free legal guides to facilitate public access to legal resources. With a passion for commercial and IP law, his research focuses on small businesses, how small businesses can navigate convoluted legal procedures and the protection of intellectual property.