A lot of business owners, be it small or large scale businesses, are hesitant to enter into business partnerships, as they believe it to be the kiss of death! But this is a myth and if done right, business partnerships can be highly profitable for the company involved. A partnership in business is a certain type of legal agreement that is made between 2 or more persons for the purpose of handling a business. Each person in this kind of a legal relationship will be a co-owner of the specified business. Co-owners invest in the business and will be liable to lawsuits and debts if any. But there is more than one type of partnership that can make up a business.
Read on to know the different kinds of partnerships and then decide which one would suit your company best –
- General Partnership: This kind of partnership involves individuals who assume equal rights in the management and day-to-day operations of the business. These individuals will have the liability as co-owners for lawsuits and debts. There are many pros in such an agreement; the most important one being individual tax returns at a much lower rate.
- Limited Partnership – In a Limited Business Partnership, the individuals involved in the partnership benefit from the profits but the losses they share is directly proportional to their investment in the business. And of course, there has to be at least one general partner/owner of the business.
- Limited Liability Partnerships – A Limited Liability Partnership is one where the involved partner gets protection from personal liability due to the negligence of the other. They are shielded from the wrongful acts or losses that the business suffers because of the same.
Now that you know the different kinds of business partnerships, let us go through a few tips on how to create smart partnerships in any business –
- Open communication of business goals and responsibilities: We just cannot stress this enough. Defining the roles and responsibilities of each partner/co-owner in the business will affect how smoothly it will be run. Have a clear cut vision for your business and make sure everyone agrees on the same. If not, you will find yourself at crossroads at a later stage. Finances have to be discussed in detail and openly as well. The motives for each partner may be different, but the vision has to be the same.
- Having a history: If you have just met your business partner a few days/weeks before you intend to start a business, the risk factor can be high. Although not mandatory, it is favorable that you know your partner and have a considerable history with them. You would have handled disagreements and together worked on projects prior to this. This way it will be much easier to define roles and divide the executive tasks of the company.
- Complementary skills: When choosing a business partner, make sure that each of you has complementary skills. If you want to cut down on outsourcing, then it is best if you have diverse skills. This way, you’ll be saving a lot of time and money. This is crucial, especially for a small business or a startup.
- Conflict resolution strategies: Have a conflict resolution plan in place. Always have hard talks at the very beginning to avoid disruptions in the future. Sometimes, it is okay to ask for outside help if things don’t settle down as planned. During disagreements, make sure that you aren’t too quick to judge and make an attempt to listen actively.
- Avoiding a 50-50 partnership: Although this is solely up to your discretion, in times of decision making it is always good when there’s a partner with the upper hand who can take a decision. In such cases, a 50-50 partnership can cause a deadlock on crucial decision making. There has to be a unanimous agreement on whose decision will be a tiebreaker. This is related to having complementary skills. One person might be great at day-to-day tasks and the other at execution. Define roles accordingly.
- Written legal agreement: Documentation is everything! It’s best not to assume responsibilities of yourself or the other partner. A legal partnership agreement has to be in place before anything else. This will include all the terms and conditions that make up the agreement. It is advisable to hire an attorney to do this part because it is very crucial for you and the company in the long run.
A smart business partnership can rake in great profits for the business. Once you have tested your compatibility, the risks are lesser. Keep the above mentioned tips in mind and go in for a partnership model most suitable for your business.
– Chaithra M D