In a partnership, two or more people combine resources to start a business. In a partnership, the law doesn’t distinguish between the business and its owners. Partnerships can be a little complicated, because there are three different types possible – general partnerships, limited partnerships, and joint ventures.
Let’s take a look at some of the perks and snags of choosing a partnership for your company’s form of organization.
Perks of small business partnerships
- Relatively easy to form.
- Relatively low start-up costs.
- Simple to start and organize.
- Partnership agreement has most legal issues covered.
- Having more than one owner may allow more access to funds.
- There may be possible tax advantages.
- It may be easy to attract employees if they’re given the incentive to become a partner.
- Limited regulation.
- Ability to benefit from complementary skills of partners and a broader management base.
Snags of small business partnerships
- Each partner may be responsible for the actions of another partner.
- Profits must be shared with other partners.
- Unlimited liability for General Partnerships (not separate by law, can be personally liable for all debts even if it means paying debts with personal assets).
- Control and authority over important decisions is shared.
- Difficulty in changing ownership.
- Disagreements among partners may occur; may take a longer time to come to a decision.
- Difficult to find suitable partners.
- Some employee benefits are not deductible from business income on tax returns.
- As a partnership, the company may have a limited life if a partner withdraws or dies.