The Advantages and Drawbacks of Business Partnerships

If you are considering starting a new business, you likely have several questions. There are many decisions you will have to make, the impacts of which will affect the health and future of the venture. Although this is an exciting time, it’s natural to also feel slightly overwhelmed and intimidated by all the choices and tasks you’re facing. For instance, if you and a friend, family member, or other trusted individual are considering forming a business partnership, exploring the potential benefits and limitations of this type of business structure is critical. The last thing you want is to find yourself embroiled in tense, contentious legal battles with your business partner, so consider taking some time to understand the pros and cons of business partnerships before you move forward. Working with an experienced business law attorney will help you make informed decisions about your business with greater clarity and confidence.

What is a Business Partnership?

First, it’s helpful to understand what constitutes a business partnership. This type of structure is a formal agreement between two or more people who pledge to work together by sharing ideas, risks, and rewards. General partnerships allow all members to share both the profits and liabilities, while limited liability partnerships (LLPs) work well for professionals (i.e., doctors, attorneys, architects, etc.) who want to minimize the partners’ personal liability. Limited partnerships are a blend of general partnerships and limited liability partnerships in which at least one party must be a general partner who assumes total personal liability for the partnership’s debts. Additionally, at least one other partner is a silent partner, whose personal liability is limited to the amount they invested in the business.

Advantages of a Business Partnership

There are several reasons why you may want to consider forming a business partnership. Below are some of the advantages of selecting this type of business structure.

Fostering Innovation

A partnership inherently involves two or more parties, meaning that the business will benefit from different perspectives, experience levels, and ideas. The parties can complement each other’s strengths and fill in any gaps in knowledge or experience. For instance, one partner may come from a marketing background, while the other may know the best way to handle the manufacturing and distribution of your product. Aligning these two strengths may help your business move a product to market more smoothly, quickly, and strategically.

Distributing the Workload

Another advantage of forming a business partnership is that you are able to share the overall workload by dividing it among the parties. You can determine the most strategic way to allocate the tasks between the two (or more) partners, which allows these daily to-dos to be completed more efficiently. Unlike a sole proprietorship, in which the owner must handle all of the business-related tasks independently, a partnership encourages you to divide the workload among two or more people. Additionally, you can tackle paperwork more effectively by determining which partner will handle the trade name application and which partner will establish the partnership agreement. Dividing up these tasks frees you up to focus on other aspects of the business.

Focusing on Long-Term, Sustainable Growth

When you are able to split the workload with one or more partners, you have more time to focus on the long-term goals of your business. For instance, you may have more bandwidth to examine your competitors, research trends in your industry, or pursue potential leads. You can use the shared responsibilities that accompany business partnerships to your advantage, identifying opportunities to expand and support your business in innovative and sustainable ways.

Potential Drawbacks to Business Partnerships

Business partnerships are not ideal for every new venture. As you explore your business formation options, it’s important to recognize some of the potential limitations or disadvantages of the business partnership structure.

Disagreements Can Get Messy

Disputes are nearly impossible to avoid. While you and your partner may be able to work through minor disagreements as they arise, you may find yourselves at an impasse if the dispute grows out of hand. Without a clear plan for handling business disputes, you could face a costly and contentious legal dispute. However, you can minimize the potential for explosive and stressful legal battles by addressing these potential issues in your partnership agreement. Your attorney can help you include specific guidelines for navigating and resolving partnership disputes to ensure that there is a clear process in place should a dispute arise.

Determining Decision-Making Authority

It can be challenging for partners to make decisions about the business, especially when they have conflicting viewpoints. Business partners may argue about which party has more authority to make the decision, which can escalate into a legal dispute. Additionally, one partner may make a decision without the other’s knowledge or consent, leading to further issues. Work with your attorney to ensure that your partnership agreement expressly addresses the decision-making process and how you plan to navigate deviations from the terms listed in the agreement.

Discuss Your Options With a Trusted Attorney Today

Starting a new business venture is exciting. If you’re ready to explore your options for structuring your business, reach out to a knowledgeable and caring business law attorney to ensure you set your business up for success.

If you need help with a business law matter, contact Judex Law, LLC, today at (303) 523-4022 to speak with a trusted and friendly Colorado attorney.

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