There are many benefits of forming a business partnership. A business partnership can help you combine efforts, resources and skills. However, sometimes partnerships can fail. This often happens when partners fail to address some issues when during the formation of their agreement.
Here are four issues you may want to address before starting a business partnership:
1. The type of legal partnership you want
Before you start your business partnership, it’s crucial that you agree on the type of legal business structure. For example, you can choose from a general partnership, a limited partnership, a limited liability partnership and a limited liability limited partnership.
Some forms of partnerships can lessen risks, and others are limited to some types of business. Therefore, it would pay first to know your options and choose a type of partnership that will suit your needs.
2. Each party’s financial responsibilities
When operating a business, there will be some monetary responsibilities that must be met. This can be capital to purchase supplies or pay rent on a property. Which means money should be added to the business. Therefore, you should agree on how the money will be raised, who will put it up and how it will be repaid if you get financing from a lender.
3. The exit strategy
Ironically, partnerships don’t last forever, and some years down the road, one of you might want to leave the partnership for retirement or because they found new opportunities. However, if one partner leaves, it can be devastating if mishandled. This is why it is crucial to have flexible steps outlined for any partners who want to exit the partnership for any reason.
4. The division of work
Operating a business usually involves a lot of work, and a conflict can quickly arise if one of the partners takes on an uneven amount of work. You can avoid these conflicts by clearly defining who is responsible for what. Apart from avoiding conflicts, you will avoid resentments that might arise when you start distributing profits and comparing them to your partner’s efforts and results.
Starting a business partnership can be thrilling. However, address the issues mentioned above before you establish the partnership so that you can protect your future and your legal interests. Once you determine these items you will want to have proper agreements to get the business started and to incorporate what you agreed upon.. Since things don’t always work out as planned or partners don’t follow through on what they agreed to do, the agreements should deal with what happens in those events.