Partnerships

Partnerships

Partnerships are when two or more people combine to form a business unit. The maximum number of partners allowed by law is 20. Each partner receives a percentage of the return of the business, depending upon how much they invested. As with sole traders, the partners within the partnerships are also responsible for all the debts incurred by the business. This does not only apply to debts incurred by that partner but any partner.

A word to the wise - take care because creditors will take each partner's personal assets to pay off debts incurred by other partners or the entire partnership if necessary. When considering what format the business should take, decisions over who will be a partner need extra attention.

One of the most fundamental issues is to get an agreement, it is usually a requirement that all of the partners visit a solicitor and have an agreement before they will be able to get any funding (in the form of venture capital, for example). Such an agreement will force partners to think about issues such as the structure and roles of each person involved as well as the likely exit routes for the partners.

This can ensure that there is a mechanism for valuing and buying one partner's shares. Partnerships are a bit like a marriage and divorce. From the outset people entering them often do not think about what would happen should it fail.

Partners can address the issues in less confrontational ways by asking what each partner wants to do when they are bored of the business. One of the common factors missing from collaborations that are not successful is mutual respect.

If you lose confidence in the competence of your partner and start to worry about whether they can do the job that can be fatal. There are distinct advantages of collaboration within a partnership. Not least that you are able to share the burden of a new venture.

Partnerships give mutual support, companionship, and someone to share the problems with. It can be stressful, lonely and frightening running a business alone. With someone else, you can feel like you are in it together. You will have access to more skills, knowledge and experience.

These relationships provide for a wider skill-base, complementary experience and know how. For example, this works well if one partner is technical and the other is finance orientated. Very few individuals have all the skills and knowledge needed to run a successful business alone.

Another person brings another set of skills, knowledge and experience, which will in turn lead to more effective decision-making. A partner will bring different perspectives on problems. If often helps being able to see different points of view.

Being able to look at problems from many angles can help to achieve better often more creative solutions: more people mean more perspectives. However with advantages come disadvantages. Partnerships provide less autonomy, that is, not being able to do your own thing and not always getting your own way.

Sharing ownership does mean that you cannot always conduct your business exactly as you might wish to. Your partner might have different views on personal rewards versus investment in the business. People have different views about their own future, which may not be compatible. People differ in how they see the future of the firm; some are ambitious for their firm and want to build an empire, some want a quieter life.

Decision-making can be slower due to the need to get consensus. Collaboration often means that the cost of a wider perspective on problems is a loss of spontaneity but if you have considered it carefully, there are many advantages to forming a partnership.