Good Reasons for a Business Partnership

A business partnership is the result of two or more people joining their hands to become owners of one business venture.

Most partnerships are made when people discover that they share similar business interests/objectives, and working together could help them achieve their business goals faster.

However, a significant number of people are reluctant to form partnerships because if not well managed, most partnerships turn chaotic. Partnerships involving family members typically go through challenges because of close family bonds. Such partnerships require well-structured regulations to avoid mixing business with friendship.

However, there are myriads of significant benefits that come with partnerships, as explained in details below:

1. Low Startup Cost

Businesses demand the most capital when they are starting. More partners will significantly reduce the startup cost, and more capital will be injected into growing and developing the new business.
It will be easier for the new business venture to expand and start more other branches because the starting burden will be equally shared between/among the partners.

2. More Flexibility

It is easier to form and manage a partnership than a sole proprietorship business. The striking advantage of partnerships is that they face less strict regulations than companies. Also, the management system of a partnership is less complex than that of a company.

It is, therefore, far much easier for partners to run a business efficiently as long as they agree. On top of that, partners can change the structure of the business more quickly than a company that has several shareholders.

3. A Higher Borrowing Capacity

The borrowing capacity of a partnership is higher than that of a sole proprietorship. The partnership will not be treated as a separate business entity, and the borrowing capacity of the business will depend on the borrowing capacities of the individual partners.

In most cases, the borrowing capacities of the partners combined will be higher than that of one owner who is managing a business single-handedly.

4. More Heads Make a Better Decision

Partners help each other brainstorm on ways of improving the business and strategies of taking it to the next level. More heads mean more brains. The more the number of partners involved in a business, the higher the odds of coming up with feasible solutions every time the business encounters challenges and setbacks.

On top of that, partnerships can reach more contacts for viable business ideas than a sole proprietorship.

5. More Privacy in Partnerships

Businesses that are owned by partners can remain confidential longer than limited companies. For limited companies to operate legally, they should give out some of their documents for public inspection.

However, partnerships can start, grow, and develop without opening up so much to the public.

It is challenging to operate a limited company in private because shareholders may demand confidential financial documents to assess the potential of the company before investing in it.

In a nutshell, understanding the essential benefits of a business partnership is vital so that that you make the right decision when planning to select a particular business structure.

Partnership Business and Types of Partners in it.

A partnership business is a business that is composed of at least two owners or more. The owners provide the starting capital to ensure that their firm is steady and ready to operate. The partners are guided by a partnership agreement that they sign before starting the firm. This partnership agreement states the role and responsibility that every partner should do.

There are different types of partnerships that are a general partnership, limited partnership, and limited liability partnership. Under these types of partnerships, there are different kind of partners who are categorized by the role they play in the firm.

Types of Partners

1)Active partners

They are also known as managing partners. This type of partners plays a major role in the business of managing all the firm’s assets hence the name managing partners. They are responsible for running the business.

They are also termed as agents since they carry on the business on behalf of the other partners. They are responsible for all day to day financial, legal, and human resource functions.

They also carry additional responsibilities and liability. In case an active partner wants to retire, he/she must give a public notice to notify the others that he is going to retire if he does not do that he remains liable for all the business acts.

2)Dormant partners

They are also known as sleeping partners. As their role suggests, they do not play an active role in the business that is they do not participate in the day to day running of the firm. Just as active partners, he/she will share the businesses profit and also losses.

The partner is also entitled to contribute his share capital just like other partners in the business. Unlike the active partner, it is not a must he give public notice when he/she wants to retire.

3)Nominal partners

They are also referred to as ostensible partners. This is partners who do not have any real interest in the business. He only lends his name to the firm. He does not make any contributions in terms of capital, and he is not entitled to any share of the profit the firm makes.

The primary role he plays is that he is only liable to third parties and people outside for deeds done by other partners. The business only takes advantage of his name either he is a prominent person in the country. He is useful for persuasion purposes only.

4)Partners by estoppel

They are also known as partners by holding out. This types of partners act as if they are real partners of the business whereas they are not. They are very different from nominal since their names are not used by the firm.

5)Partners in profits only

They only share the profit of the business. They have a limited liability with the firm meaning he shares none of the firm’s liabilities.

6)Minor partners

When starting a firm partnership act, the partners must know the age of the majority member. Minor partners are partners who have not attained the age of the majority. He shares profits of the firm, but on losses, he is limited since he has not reached the age of the majority.