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Pros and cons of a business partnership

If you’re starting a business with another person or group of people, it would make sense to form a business partnership, wouldn’t it? Well, not so fast.

A partnership would allow those involved to have part-ownership of the business, but there are other pros and cons to consider as well. There are three different types of partnerships: limited, limited liability and general partnerships. All three have their separate legalize, advantages and disadvantages to sort through and consider but there are pros and cons that cover them to mull over as well.

The pros

  • An extra set of hands and minds: Business owners tend to have to be a jack-of-all-trades, wearing many different hats. Because of this, the more hands, and minds to devote to a project, the better.  A partner can bring extra knowledge to a subject or knowledge of the strategy toward running a successful business.
  • Less financial burden: Due to inventory, equipment, retail space and other costs, running a business is expensive. A partner can help ease those financial hurdles by splitting the costs.
  • Less paperwork: Filing for a partnership is not time consuming. Often only local paperwork consisting of a partnership agreement that states the duties each partner will perform, how decisions will be made, hot profit and loss will be divided and other agreements specific to the business.
  • Taxes are easier: With business partnerships, no additional business entity taxes are necessary, which means no business tax forms need to be filled out or filed. Instead, taxes pass to each partner separately where you include your separate profits and losses on your individual return and are liable to pay and additional taxes on those profits and losses.

The cons

  • The partners must be consulted on decisions: In partnerships, you shouldn’t be making decisions on your own because they affect your partner(s) as well.
  • Disagreements: As with any partnership, business or otherwise, there is conflict and adversity. If you reach a point where working with each other is no longer an option, you can easily dissolve the partnership.
  • Splitting the profits: This is one area that can get on people’s nerves. More partners equal more hands looking for the profits.
  • You and the business are one in the same: You are legally and financially responsible for the business. If legal or financial troubles arise, you won’t be considered a separate entity from your business.
  • Individual taxes: Yes, this is a pro and a con. The disadvantage of individual taxes, is that business taxes generally have lower rates than individual taxes.

Questions to ask yourself and/or your specialized business attorney

  1. Do I want to go into business with others or go in alone?
  2. Am I okay with being held liable?
  3. Do my business partner and I share the same vision?
  4. What style of partnership am I seeking?
  5. What additional documents are needed to begin a partnership?

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