What Is a Partnership Business?

4 Types of Business Partnerships: Which Is Best for You?

When you enter one, you’re signing up to mingle your finances. If the business is sued because of something your business partner does, you both have to answer. And if you’re not careful, creditors and courts can reach into your personal assets to settle up.

A partnership is a business shared by multiple owners. It’s not a legal business entity, and it doesn’t have to be registered with the state. Basically, if you decide to go into business with another person without filing any state paperwork, you’re automatically in a partnership.

How are partnerships different from other business entities?

A partnership, like a sole proprietorship, is legally and financially inseparable from its owners. Profits and losses may be passed through to the owners’ personal income for tax purposes. Debts and liabilities pass through as well.

Advantages and disadvantages of a partnership business

Understanding the pros and cons of forming a partnership business can better inform you about how a business partnership works and help you decide whether this is the most beneficial structure for your organization.

Advantages

  • Stronger financial position. The ability to pool resources can provide your business with more capital and access to new investors, while better positioning the company to borrow money. Sharing business expenses with your partners can help you save more than you might have on your own.
  • Brain trust. Being able to share skills and institutional knowledge is a key benefit of a business partnership. This can help broaden your expertise and the versatility of your business.
  • A broader network. By sharing contacts and connections with your business partners, you can develop new relationships and expand your professional network.
  • Fresh eyes. Bringing in partners can provide new perspectives on how you do business by seeing things from a different angle. Partners can offer fresh ideas, market strategies and inspiration to grow your business.
  • Tax savings. If your business is set up as a general partnership, your company may not need to pay income taxes. In Canada, a partnership by itself does not pay income tax on its operating results and does not file a tax return. Instead each partner includes a share of the partnership income or loss on a personal, corporate or trust income tax return. 1

Disadvantages

  • Liability. The primary drawback of a partnership is that all partners share losses, debt and risk, and are fully liable for the financial obligations of the business. This means creditors can seize any partner’s personal assets if these obligations are not met.
  • Loss of full control. Sole proprietors who are used to doing everything their own way might be in for a bit of an adjustment when switching to a partnership business. Partners share decision-making and may need to compromise when they can’t agree.
  • Potential for conflict. Having more than one person making business decisions creates the potential for differences of opinion that can lead to conflict. Partners may also become bitter if they feel like one person isn’t contributing his or her fair share.
  • Difficult to sell. A partner cannot sell a business without the consent of all of the other partners, potentially creating a stalemate when one of the owners is ready to leave.
  • Risk of instability. Without a plan in place, one partner’s death, illness or withdrawal from the business may put the future of the company in jeopardy.

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Ian Bailie is the Managing Director of myHRfuture.com and an advisor and consultant for start-ups focused on HR technology and People Analytics, including Adepto, Worklytics and CognitionX. In his previous role as the Senior Director of People Planning, Analytics and Tools at Cisco Systems, he was responsible for delivering the tools and insights to enable and transform the planning, attraction and management of talent across the organisation globally. Ian is passionate about HR technology and analytics and how to use both to transform the employee experience and prepare companies for the Future of Work.

Source:

https://www.score.org/news/4-types-business-partnerships-which-best-you
https://www.americanexpress.com/en-ca/business/trends-and-insights/articles/what-is-a-partnership-business/
https://www.myhrfuture.com/blog/2019/10/14/what-does-it-mean-to-be-a-hr-business-partner-today

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