Getting into a business venture has its benefits. It permits all contributors to share the stakes in the business enterprise. Limited partners are only there to give financing to the business enterprise. They’ve no say in business operations, neither do they discuss the duty of any debt or other business obligations. General Partners operate the business and discuss its liabilities as well. Since limited liability partnerships call for a lot of paperwork, people tend to form general partnerships in businesses.
Facts to Consider Before Setting Up A Business Partnership
Business ventures are a excellent way to talk about your gain and loss with someone you can trust. However, a poorly executed partnerships can turn out to be a tragedy for the business enterprise. Here are some useful methods to protect your interests while forming a new business venture:
1. Becoming Sure Of You Need a Partner
Before entering into a business partnership with a person, you have to ask yourself why you want a partner. If you’re looking for only an investor, then a limited liability partnership should suffice. However, if you’re trying to make a tax shield to your business, the general partnership would be a better option.
Business partners should complement each other in terms of expertise and skills. If you’re a technology enthusiast, teaming up with an expert with extensive advertising expertise can be quite beneficial.
2. Understanding Your Partner’s Current Financial Situation
Before asking someone to commit to your business, you have to understand their financial situation. If business partners have sufficient financial resources, they won’t require funds from other resources. This will lower a company’s debt and increase the operator’s equity.
3. Background Check
Even in case you expect someone to be your business partner, there is no harm in performing a background check. Calling a couple of professional and personal references may provide you a reasonable idea in their work ethics. Background checks help you avoid any future surprises when you start working with your business partner. If your business partner is used to sitting and you are not, you can split responsibilities accordingly.
It is a great idea to test if your partner has some previous knowledge in running a new business enterprise. This will explain to you the way they completed in their previous endeavors.
4. Have an Attorney Vet the Partnership Documents
Make sure that you take legal opinion prior to signing any venture agreements. It is important to get a fantastic comprehension of every clause, as a poorly written arrangement can force you to run into liability issues.
You need to make certain to delete or add any appropriate clause prior to entering into a venture. This is because it’s cumbersome to create alterations after the agreement was signed.
5. The Partnership Must Be Solely Based On Business Provisions
Business partnerships shouldn’t be based on personal relationships or preferences. There should be strong accountability measures put in place from the very first day to track performance. Responsibilities must be clearly defined and performing metrics must indicate every individual’s contribution to the business enterprise.
Having a weak accountability and performance measurement system is just one of the reasons why many ventures fail. As opposed to placing in their efforts, owners start blaming each other for the wrong decisions and resulting in company losses.
6. The Commitment Amount of Your Business Partner
All partnerships start on friendly terms and with great enthusiasm. However, some people eliminate excitement along the way due to regular slog. Therefore, you have to understand the commitment level of your partner before entering into a business partnership together.
Your business partner(s) need to be able to show exactly the same level of commitment at each phase of the business enterprise. If they don’t stay committed to the business, it is going to reflect in their work and could be detrimental to the business as well. The best approach to maintain the commitment level of each business partner is to set desired expectations from each individual from the very first moment.
While entering into a partnership arrangement, you will need to get some idea about your partner’s added responsibilities. Responsibilities such as taking care of an elderly parent should be given due consideration to set realistic expectations. This provides room for empathy and flexibility on your work ethics.
This would outline what happens in case a partner wishes to exit the business. Some of the questions to answer in this scenario include:
How does the departing party receive compensation?
How does the branch of funds occur among the remaining business partners?
Moreover, how are you going to divide the duties?
Even if there is a 50-50 venture, someone needs to be in charge of daily operations. Areas such as CEO and Director have to be allocated to appropriate individuals such as the business partners from the start.
This helps in creating an organizational structure and further defining the functions and responsibilities of each stakeholder. When every individual knows what is expected of him or her, they are more likely to work better in their own role.
9. You Share the Very Same Values and Vision
Entering into a business venture with someone who shares the same values and vision makes the running of daily operations much simple. You can make important business decisions quickly and establish longterm plans. However, occasionally, even the very like-minded individuals can disagree on important decisions. In these scenarios, it’s essential to keep in mind the long-term aims of the business.
Business ventures are a excellent way to share liabilities and increase financing when establishing a new business. To earn a business partnership successful, it’s important to get a partner that can allow you to earn fruitful decisions for the business enterprise. Thus, pay attention to the above-mentioned integral facets, as a weak spouse (s) can prove detrimental for your venture.