Insights & Advice From Bank Of Tennessee


Partnership Pros and Cons

Partnership Pros and Cons

Are you thinking about forming a business partnership? Starting a business with a partner affords many benefits. In a perfect world, that means sharing the expenses, ideas, workload, responsibilities, and profits.

In the real world, it can mean personal liability for the partnership’s activity, emotional ups and downs, personality conflicts, and differing ideas about the company’s product line, vision, and future.

Before you decide to form a business partnership, it is helpful to learn about the different types of business models and the advantages and disadvantages of going down the partnership path.

What Is a Partnership?

There are three standard types of legal entities called partnerships. You must register with the business agency in your state for any of them.

  1. General Partnership.

    In a general partnership, each partner shares equally in the profits, liability, and responsibilities involved in running the business. Unequal partnerships are also available, in which different percentages are assigned to each partner, as laid out in an official partnership agreement.
  2. Limited Partnership.

    Also called partnerships with limited liability, limited partnerships have a more complicated setup than general partnerships. Here, each partner has both limited liability and limited input on decisions for running the company. Limits are defined based on the percentage each partner has invested. Limited partnerships are often preferred by individuals interested in short-term projects.
  3. Joint Ventures.

    Very similar to the general partnership, a joint venture lasts for a particular period or the duration of a single project. These can merge into a regular, ongoing partnership, but doing so requires a new registration of the business.

Benefits of a Partnership

When you are evaluating all of the work needed to get a business up and running, a partner can look very attractive. Having someone whom you can share the workload, decision-making, expenses, and the emotional roller coaster of starting a business can mean the difference between making the big jump or letting it stay a dream.

Other strong points in favor of a partnership include:

  • Ease of setting up a partnership.
  • Broadening the businesses available skillset.
  • Having multiple perspectives on running the business.
  • Leveraging the strengths of each partner.
  • Shared accountability.
  • Enhanced ability to share and discuss ideas
  • An expanded business social network.
  • Having a wider pool of options for financing.

Drawbacks of a Partnership

Choosing the right partner will be the key as to whether your partnership succeeds or fails. It can be detrimental to the success of your business if your partner does not mesh in skills, outlook, commitment, money, and goals.

That is just one of the issues you can face when working with a partner. Others you may encounter include:

  • Work ethic: one person meets deadlines, the other is much more casual about it; one follows through, the other doesn’t.
  • Level of experience: one has years in the field, the other has enthusiasm but little training.
  • Plans for the business: one is in for the long haul, the other wants to sell as soon as you can find a buyer.
  • Liability issues: if one partner violates the law, both are liable.
  • Reputation: the reputation of one is bound to impact the reputation of the other.

Reasons for Starting a Partnership

Just as there are good and not-so-good partners, there are good and bad reasons to enter into a partnership.

Good reasons:

  • Gaining specific skills, such as marketing, operations or finance.
  • Sharing the workload with an able co-manager.
  • Teaming up with someone with a track record in your industry.
  • Your working style is that of team player. A partnership is your natural habitat.

Bad reasons:

  • Needing a yes man.
  • Wanting someone to run the business for you, either because you do not have the time or the confidence.
  • Friendship—this is always easier to maintain outside the work environment, which is filled with daily stresses.

Deciding to form a business partnership is one of the most significant decisions you can make for your business. Deciding on a partner is equally, if not more, important. Weigh the pros and cons of having a business partner. Choose someone you trust who adds additional skills to your business and has a personality that meshes well with yours. That is the formula that the most productive, successful partnerships have in common.