Getting into a business venture has its benefits. It allows all contributors to split the stakes in the business. Limited partners are just there to give financing to the business. They’ve no say in company operations, neither do they share the duty of any debt or other company obligations. General Partners operate the company and share its obligations as well. Since limited liability partnerships require a lot of paperwork, people usually tend to form general partnerships in companies.
Things to Consider Before Establishing A Business Partnership
Business partnerships are a great way to talk about your gain and loss with someone you can trust. But a badly implemented partnerships can prove to be a tragedy for the business. Here are some useful ways to protect your interests while forming a new company venture:
1. Becoming Sure Of You Need a Partner
Before entering into a business partnership with someone, you need to ask yourself why you want a partner. But if you’re trying to make a tax shield for your business, the general partnership could be a better choice.
Business partners should complement each other in terms of experience and skills. If you’re a technology enthusiast, then teaming up with a professional with extensive advertising experience can be very beneficial.
2. Understanding Your Partner’s Current Financial Situation
Before asking someone to dedicate to your business, you need to understand their financial situation. If company partners have sufficient financial resources, they will not need funding from other resources. This may lower a company’s debt and increase the owner’s equity.
3. Background Check
Even if you trust someone to be your business partner, there’s not any harm in performing a background check. Calling a couple of personal and professional references may give you a reasonable idea about their work ethics. Background checks help you avoid any potential surprises when you start working with your business partner. If your company partner is accustomed to sitting and you aren’t, you can divide responsibilities accordingly.
It’s a good idea to test if your partner has any prior knowledge in conducting a new business enterprise. This will explain to you the way they performed in their previous endeavors.
4. Have an Attorney Vet the Partnership Records
Ensure that you take legal opinion prior to signing any venture agreements. It’s necessary to get a good understanding of each policy, as a badly written arrangement can make you run into accountability issues.
You should be sure that you delete or add any appropriate clause prior to entering into a venture. This is because it is cumbersome to create amendments after the agreement has been signed.
5. The Partnership Should Be Solely Based On Business Provisions
Business partnerships shouldn’t be based on personal relationships or tastes. There ought to be strong accountability measures set in place in the very first day to monitor performance. Responsibilities must be clearly defined and performing metrics must indicate every person’s contribution towards the business.
Possessing a poor accountability and performance measurement system is just one of the reasons why many partnerships fail. As opposed to putting in their efforts, owners start blaming each other for the wrong choices and leading in company losses.
6. The Commitment Level of Your Business Partner
All partnerships start on favorable terms and with good enthusiasm. But some people eliminate excitement along the way as a result of everyday slog. Consequently, you need to understand the commitment level of your partner before entering into a business partnership with them.
Your business associate (s) should be able to demonstrate exactly the same amount of commitment at every phase of the business. If they do not remain dedicated to the company, it will reflect in their job and could be detrimental to the company as well. The best approach to maintain the commitment amount of each business partner would be to set desired expectations from every person from the very first day.
While entering into a partnership arrangement, you need to get an idea about your partner’s added responsibilities. Responsibilities like caring for an elderly parent ought to be given due thought to set realistic expectations. This provides room for empathy and flexibility on your job ethics.
7. What Will Happen If a Partner Exits the Business
This could outline what happens if a partner wants to exit the company.
How does the departing party receive compensation?
How does the branch of resources occur one of the remaining business partners?
Moreover, how are you going to divide the responsibilities?
8. Who Will Be In Charge Of Daily Operations
Even when there’s a 50-50 venture, someone needs to be in charge of daily operations. Positions including CEO and Director need to be allocated to suitable people including the company partners from the beginning.
When each person knows what is expected of him or her, then they’re more likely to perform better in their own role.
9. You Share the Very Same Values and Vision
Entering into a business venture with someone who shares the same values and vision makes the running of daily operations much easy. You can make important business decisions quickly and establish longterm strategies. But occasionally, even the very like-minded people can disagree on important decisions. In such scenarios, it is essential to remember the long-term aims of the business.
Bottom Line
Business partnerships are a great way to share liabilities and increase financing when establishing a new small business. To make a business partnership successful, it is crucial to find a partner that will help you make fruitful choices for the business. Thus, pay attention to the above-mentioned integral aspects, as a weak partner(s) can prove detrimental for your venture.