What is a Partnership Business?
Human life is focused on building relationships with other people; every day, we communicate with family, friends, colleagues, partners, and with strangers. Every inhabitant of our planet is programmed for a pair existence, and it concerns not only personal relationships but also business ones. Therefore, it is often easier for a business person to do business not alone but with partners.
In this article, we will consider what is a Partnership Business? What are its pros and cons, and how to be successful in partnership business?
What is a Partnership Business?
A partnership business is a system of interaction between two or more parties engaged in entrepreneurial activities and uniting to achieve certain goals. This type of business is based on the positive result of joint activities and dedication to a common cause.
Entry into partnerships is most often due to the impossibility of independent achievement by an entrepreneur or a company. The reason for this may be, for example, a lack of funds, lack of experience in a particular field, or a geographic factors.
Partnership businesses can be conditionally divided into two levels. The first is only actual, in which business relations are maintained, but they are not registered. The second is legal, implying documentary registration of cooperation.
- Unregistered Partnership Business: The first option occurs with the joint participation of several companies in the implementation of a project. Within the framework of such interaction, research is carried out. The main focus is on the exchange of experience and knowledge and the development of new solutions in practice.
- Registered Partnership Business: If the main goal of cooperation for each party is to make a profit, the partnership is documented. An agreement is drawn up, which defines the rights and obligations of partners, the form of responsibility, the procedure for the formation of property and distribution of profits. An important condition for such a partnership is the contribution of each party to a common cause, which can be money, real estate, equipment, intellectual property, as well as business ties, and reputation.
Partnership businesses have two sides of the coin; let’s look at them.
Benefits of Partnership Business
The following are some benefits of a partnership business:
1. Two heads are better than one
Firstly, it is often not possible to hold an entire enterprise, even the smallest, in your hands alone. With competent work, your business will begin to expand and grow pretty soon, which means that you will probably need help. The establishment of a business, its development, and prosperity fall on the shoulders of several people – partners. Therefore, solving current, pressing issues and those that do not require a delay are easier to solve collectively than alone.
2. Saves time
The partnership allows you to gain time, and, as you know, time is money. The functionality of one person is divided into two, three, or more, which has a positive effect on the quality of work.
3. Multiple productive ideas
Partnerships are indicative of a doubling of start-up capital. The increase in monetary resources gives rise to a lot of ideas with the possibility of their embodiment and implementation.
A reliable shoulder and help is always there; when a business person has a partner. It’s great when you are not tied hand and foot, firmly glued to work. You can plan a weekend, vacation, and go on business trips with peace of mind, knowing that a reliable person is at the helm. In addition, some lone entrepreneurs sometimes face burnout. This dangerous condition can be avoided if more than one head is trying to get the job done.
5. Financial growth
At first glance, it may seem that the more partners, the smaller the share of each of them. In fact, if the participants honestly try on the project and invest their energy in its development, then the capital of the company will quickly begin to grow exponentially. You will earn a lot more by partnering with others than you will alone.
6. The creditworthiness of the company increases
The loyalty of banks is conditioned by the capabilities of the borrower. When the organization is represented by two or more people, the chance of getting a loan grows accordingly.
Disadvantages of a partnership business
- Sometimes disagreements can lead to the carve-up of entrepreneurship and even to disintegration and bankruptcy;
- There could be an unequal distribution of power that can lead to conflicts;
- contradictions with a partner or partners can delay the time for solving important problems and issues;
- complete dependence on a partner who can sell his/her share to a completely outside person.
How to be successful in a partnership business?
For voiding conflicts and getting success in the business, the following agreements should be signed at the initial stage:
1. Agreement on joint activities
When creating a joint company, partners must conclude an agreement regulating the activities of the founders. This is not a constituent document but an agreement on joint activities. In the agreement, the partners can provide for certain conditions that exclude conflicts. It may contain:
- provisions on the responsibility of the founders (forfeit, fine, interest) in case of non-payment of the share in the authorized capital;
- the procedure for the distribution of costs associated with the creation of a company;
- and the procedure for resolving any disagreements that may arise in the process of establishing a company.
2. A corporate agreement
In this agreement, the parties undertake to exercise their rights in a certain way or even refuse to use them. For example:
- vote in a certain way at a general meeting of participants;
- to acquire or sell shares (shares) at a specific price or upon the occurrence of certain circumstances;
- refrain from selling shares (stocks) until a certain point, etc.
A corporate agreement is especially useful when both partners have an equal number of shares (shares). It can provide for various options for the development of the conflict and model ways to resolve it, and establish the responsibility of each of the parties for violation of the adopted provisions.
3. A simple partnership agreement
If the partners are individual entrepreneurs, then they can conclude a simple partnership agreement. In it, they pledge to combine their contributions and work together to make a profit. Contribution under the law can be any: money, property, professional and other knowledge, skills, abilities, business reputation, business ties. However, the contract must indicate:
- the value of the deposits;
- ownership of the contributed property and income received;
- the procedure for using common property;
- obligations of partners to maintain the common property and related reimbursement of expenses;
- procedure for conducting common affairs;
- the procedure for covering expenses and losses.
The advantage of a simple partnership is that its participants can choose convenient rules for joint activities.
Let’s Sum Up
In order to be successful in the partnership business, it is necessary to define the goal of the cooperation clearly, find out exactly who is needed to achieve it, prepare a business proposal and presentation of your project and use the most effective means of establishing contact. But how is it possible alone as a beginner? Only a single wrong step, in the beginning, can lead to a severe loss in the future. That’s why you should take the help of experts.
Remember to Compare Your Business Costs is here to help your business every step of the way from business advice, or saving you time and money on your business purchases such as: