Getting into a business venture has its own benefits. It permits all contributors to split the stakes in the business. Based upon the risk appetites of partners, a business can have a general or limited liability partnership. Limited partners are just there to give funding to the business. They’ve no say in business operations, neither do they discuss the duty of any debt or other business obligations. General Partners function the business and discuss its liabilities too. Since limited liability partnerships call for a great deal of paperwork, people usually tend to form general partnerships in companies.
Things to Think about Before Setting Up A Business Partnership
Business ventures are a great way to share your profit and loss with somebody you can trust. But a badly executed partnerships can prove to be a tragedy for the business. Here are some useful methods to protect your interests while forming a new business venture:
1. Becoming Sure Of You Want a Partner
Before entering a business partnership with a person, you have to ask yourself why you need a partner. If you’re seeking only an investor, then a limited liability partnership ought to suffice. But if you’re working to create a tax shield to your enterprise, the general partnership would be a better option.
Business partners should match each other in terms of experience and techniques. If you’re a technology enthusiast, then teaming up with a professional with extensive marketing experience can be very beneficial.
Before asking someone to dedicate to your business, you have to understand their financial situation. If business partners have sufficient financial resources, they will not require funds from other resources. This may lower a company’s debt and boost the operator’s equity.
3. Background Check
Even if you expect someone to become your business partner, there’s no harm in doing a background check. Calling a couple of personal and professional references can give you a fair idea about their work integrity. Background checks help you avoid any potential surprises when you start working with your business partner. If your business partner is accustomed to sitting late and you are not, you are able to split responsibilities accordingly.
It is a good idea to test if your partner has any prior experience in conducting a new business enterprise. This will explain to you how they completed in their previous jobs.
4. Have an Attorney Vet the Partnership Documents
Make sure that you take legal opinion prior to signing any venture agreements. It is among the most useful ways to protect your rights and interests in a business venture. It is necessary to get a good understanding of every clause, as a badly written agreement can make you run into liability problems.
You should be sure to delete or add any appropriate clause prior to entering into a venture. This is as it is cumbersome to make alterations after the agreement has been signed.
5. The Partnership Should Be Solely Based On Company Terms
Business partnerships should not be based on personal relationships or tastes. There ought to be strong accountability measures set in place in the very first day to track performance. Responsibilities must be clearly defined and executing metrics must indicate every individual’s contribution towards the business.
Having a weak accountability and performance measurement process is one of the reasons why many ventures fail. Rather than placing in their attempts, owners start blaming each other for the wrong choices and resulting in company losses.
6. The Commitment Level of Your Company Partner
All partnerships start on friendly terms and with good enthusiasm. But some people today lose 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 associate (s) should be able to demonstrate exactly the exact same amount of commitment at each stage of the business. When they don’t remain committed to the business, it will reflect in their work and could be detrimental to the business too. The best approach to keep up the commitment amount of each business partner is to set desired expectations from each person from the very first moment.
While entering into a partnership agreement, you need to get an idea about your partner’s added responsibilities. Responsibilities such as taking care of an elderly parent ought to be given due consideration to set realistic expectations. This gives room for compassion and flexibility on your work ethics.
7. What’s Going to Happen If a Partner Exits the Business Enterprise
This would outline what happens in case a partner wants to exit the business. Some of the questions to answer in this situation include:
How will the departing party receive compensation?
How will the branch of resources occur one of the remaining business partners?
Moreover, how are you going to divide the responsibilities?
Even if there’s a 50-50 venture, somebody has to be in charge of daily operations. Positions including CEO and Director have to be allocated to suitable individuals including the business partners from the start.
This helps in establishing an organizational structure and additional defining the roles and responsibilities of each stakeholder. When every person knows what’s expected of him or her, they’re more likely to perform better in their own role.
9. You Share the Same Values and Vision
You’re able to make significant business decisions quickly and establish longterm strategies. But sometimes, even the most like-minded individuals can disagree on significant decisions. In such cases, it is vital to keep in mind the long-term goals of the enterprise.
Business ventures are a great way to share liabilities and boost funding when establishing a new small business. To make a company venture effective, it is crucial to get a partner that can allow you to make fruitful choices for the business.