4.5 million new businesses were formed in the United States in 2020. Many of these businesses came in the form of partnerships due to several reasons.
Two or more parties can decide to create a joint business venture called a partnership. The agreement between the two parties may be formal or informal, but there should be a written contract. Partnerships have a few disadvantages, but they have several benefits, such as the pooling of expertise.
Here are some of the main benefits of starting a business partnership.
Fewer Legal Requirements
Managing a partnership involves adhering to a few legal requirements. This is different from the process of managing a company.
Creating a business partnership agreement takes time and requires more money, but it’s a better choice than forming a company. Your partnership agreement will list the roles of each partner, the division of revenue, and the capital contribution. It also stipulates the steps to be followed if certain situations occur.
The partnership agreement also states what will happen if the partners decide to dissolve the partnership.
Operating a business on your own is stressful and intensive. You may have to do the marketing, hiring, and sales on your own. This will require a lot of effort, time, and money.
The business partnership definition shows that the responsibilities of running the business will be shared among the partners. This reduces the burden on one person and increases productivity. If something goes wrong, all the partners will come together for mutual support.
While limited companies have to complete several accounting documents, a partnership has to do two or three filings. For example, the partnership doesn’t have to do corporation tax return filing. The only thing you’ll have to do is maintain records of your expenses and revenue.
Moreover, companies have to complete confirmation statements and submit them to the authorities. These documents are not necessary for partnerships that don’t even have to keep statutory books. At the same time, dissolving a partnership involves fewer steps than dissolving a company.
Simple Setup Process
A partnership can be up and running as soon as the partners reach an agreement. Then, once the company starts making a profit, the partners will have to submit their taxes to the IRS.
Experience, Skills, and Networks
The partnership will benefit from the experience, networks, and skills of each of the partners. As a result, the new business will be able to deploy better strategies than sole proprietorships. In addition, there will be easier access to suppliers, customers, and loans.
Each of the partners will have their area of specialization. For example, some of them may be good at marketing and will lead the marketing team. Another partner may have experience with hiring and will be in charge of the human resources department.
The specialization enables the business to create efficiencies in each department. These are benefits that aren’t available to a sole proprietorship.
It’s also easier for most types of partnership businesses to access loans.
The business owners must make several decisions regarding the operation of the business. They’ll have to choose whom to hire and the number of employees required. In addition, the business owners will have to make a decision regarding the marketing channels and advertising budget.
If you are the sole owner of your business, you’ll be using your experience to make these decisions. This can lead to problems because you’ll be making decisions using only one perspective.
Partners can brainstorm and provide their own opinions when making decisions. As a result, the business will benefit from multiple perspectives and an abundance of ideas. The result is better decision-making and fewer errors.
Limited companies must publish their returns and financial statements in the public domain. This makes it very difficult for the business to have its own secrets. Competitors can understand your business’s financial health by analyzing your published reports.
Partnerships aren’t required to publish their internal documents anywhere. The partnership can pursue long-term objectives without worrying about privacy. Only the partners will know how the business operates and its projected revenues.
Combining Control and Ownership
The management and ownership of a limited company are shared between the directors and shareholders. Directors of the company have to consider the preferences of the shareholders before making any decision. Consequently, the decisions taken may not be in the best interests of the company.
In a partnership, the owners of the business also manage its operations. The partners only have to agree on how the business should be run and the decisions to be implemented. This introduces flexibility and quicker decision-making.
One of the most recent partnership business examples is when the Upstart Group announces partnership with Pilot Automotive.
Each of the partners may contribute money and other types of resources to the business, which will be able to start with more capital than if one person decided to start a business on their own. In addition, the business doesn’t have to borrow money to manage its growth.
At the same time, each of the partners can decide to take an individual loan. The aggregate loans will be greater than if the owner of a sole proprietorship decides to apply for one loan.
It’s difficult for a sole proprietorship to introduce a new partner to manage it. People will always associate the business with the original owner. On the other hand, new partners can always join a partnership without changing the business reputation and operation.
Start a Business Partnership to Increase Income
Starting a business can be life-changing because you may get more significant income and flexibility. While there are many types of businesses that you can start, you may prefer registering a partnership. You’ll get several benefits when you register a business partnership, such as increased capital and mutual support.
For more practical business tips, please read our other blog posts.