A partnership is a business model where two or more individuals agree to work together to form a business. These individuals share ownership of the business as well as the responsibilities that come with managing one.
Are you planning to form a partnership? Here are some things you need to know.
Types of Partnership
There are three types of partnerships. Depending on your needs and agreement with your partners, your options are the following:
- Incorporated Limited Partnership (ILP) — In an ILP, partners can have limited liability. However, there should be at least one partner with unlimited liability.
- Limited Partnership (LP) — In an LP, general partners have liability but only to the amount that they contributed to the business.
- General Partnership (GP) — In a GP, all partners have unlimited liability and share all responsibilities regarding the company equally.
One of the reasons many entrepreneurs choose to create a partnership, is that it’s relatively easy to set up. Financially, you won’t take on the burden of starting up the business yourself as you can pool resources with your partners.
Building a partnership has reduced requirements compared most other business structures, and the partnership does not have its own income tax obligations. However, each partner would have to pay income tax on their share of the net partnership income.
One of the biggest challenges of having a partnership is that differences in opinion could pose a threat to the business and its operations. Because all partners play a role in the business, making decisions could take time, especially if you and your partners find it difficult to come up with a consensus.
Another disadvantage is the way profits are divided among partners. Any miscalculation on how income should be shared could result in disagreements and issues.
It would help to keep in mind that in a partnership, partners both have an individual and joint liability. Therefore, all partners could also be liable for the actions of the other partners.
The key to a successful partnership model is making sure you choose partners that you can depend on. Choose those who understand and share your vision for the business. Additionally, it’s essential to select the right type of partnership for your business.
Not sure about which type of partnership is best for your business? Our team at Glance Consultants can help. Our professionals provide tailored advice to help you make an informed decision. Call us at 03 9885 9793 or send an email to firstname.lastname@example.org for more information on our services.