When you’re starting a business, there are a few things you need to establish. There are the things you’ll need to operate, like a California seller’s permit, but, you’ll also need to decide the right business structure.
There are pros and cons to consider for each type of business structure, but today we’ll focus on partnerships. The advantages of partnership often make it an easy choice for people starting out in the business world.
It’s also important to know the disadvantages of partnership, so you can make the most informed choice possible when it comes to the type of business you’re hoping to build.
What Are the Types of Partnerships?
Before you consider the pros and cons of a partnership business structure, you should understand that there are several different types of partnerships. Each one is slightly different, and the advantages and disadvantages change. When considering a partnership, you can choose a:
- General partnership: Two or more partners who are both responsible for managing the business, as well as the liabilities.
- Limited partnership: Limited partners do not have management duties and have no liability beyond what they’ve contributed. However, they do get a portion of the profits.
Limited liability partnership: This allows for limited liability for all partners. You can actively participate in management, as well.
What Are the Benefits of Partnership?
Now that you have a better idea of the different types of partnerships and how they work, let’s take a closer look at the advantages of this type of business structure:
- You’ll start with more capital. It takes a lot of money to start a business. If you can’t take out a loan or find an investor, establishing a partnership is a great way to split those startup costs to get your business off the ground. For example, if you have a great idea for a new food business, and you have a friend or family member who is passionate about food, you might consider asking them to partner up with you. They can then help to share in the startup costs.
- Regulations and laws tend to be easier on partnerships than LLCs, and business decisions are typically easy to make on a day-to-day basis.
Speaking of decision-making, partnerships are great for bouncing ideas off of one another. You might have a skill your partner doesn’t and vice versa. Being able to bring all of your talents together can make your business more successful. Those skills will also allow you to share in the responsibilities equally, so all of the work isn’t taken on by just one person.
What Are the Disadvantages of a Partnership?
There are also some important cons to consider before deciding if a partnership is right for you. Some of the biggest drawbacks include:
- Profit sharing. A disadvantage of forming a partnership is that owners have to split the profits equally unless otherwise noted.
- Disagreements will always happen in partnerships and, likely, in any business model that isn’t a sole proprietorship. It’s important to be able to work through any disagreement you have with your partner(s) to keep the business moving forward. If you can’t resolve your conflicts, it could result in damage to the company. If you go into business with someone you consider a friend, it could also damage your relationship.
You’re also responsible for any financial burdens the business takes on. Each partner is liable unless you decide to form a limited liability partnership. For example, if you start a restaurant and you keep losing money each month, both of you are responsible for making up that cost.
Understanding Partnership Pros and Cons
As a whole, partnerships are generally safe business structures, and many people find the benefits often outweigh the disadvantages. Yet, a lot of it has to do with the type of business you plan on starting, how much work you’re willing to put in, and if you want to do it all yourself.
No matter what type of business you’re starting, it’s important to have the right paperwork and permits in order that you can get off the ground running. At FastFilings, we provide you with business licenses and permits without all the hassle and confusion that is typically associated with such things. Whether you’re starting a partnership, doing business on your own, or even starting a large LLC, let FastFilings help you to succeed from the start with the licensing you need. Contact us today