Business partnerships offer opportunities for more capital, diversified skills, and are generally easier to form, manage and run. With more than one owner, the ability to raise funds may be increased and there is a combination of complementary skills of two or more people. There is also a wider pool of knowledge, skills, and contacts.
However, whilst it is very easy for a partner to invest money in the partnership, it is generally very difficult for that partner to withdraw any funds from the business. Partnerships also increase the possibility of misuse of resources because these resources are owned by the partners.
If the business ever becomes indebted and insolvent, the partners’ personal assets might be exposed to cover the debts. Furthermore, in the absence of an agreement to the contrary, the default rule in partnerships is that one person’s stake cannot be transferred to another without prior consent from all of the remaining partners. This inflexibility is especially undesirable when the parties have existing disagreements.
On the flip side, partnerships can be cost-effective as each partner specializes in certain aspects of the consultancy. The moral support from partners may allow for more creative brainstorming.
The more partners there are, the more money can put into the partnership, which will allow better flexibility and more potential for growth. Partnerships are generally easier to form, manage and run. They are less strictly regulated than companies, without interference by shareholders, and are far more flexible in terms of management, as long as all the partners can agree.
Partnerships also offer opportunities for shared responsibility allowing partners to make the most of their abilities, they might well split the work according to their skills.
On a negative tune, business partners are jointly and individually liable for the actions of the other partners. Also, profits must be shared with others hence, partners have to decide on how they value each other’s time and skills. This can become a source of conflict and tension between partners.
Since decisions are shared, disagreements can occur and since partnerships are usually for the long term, and expectations and situations can change, there is a possibility for dramatic and traumatic split ups. It is, therefore, advisable to draft a deed of partnership during the formation period to ensure that everyone is aware of what procedures will be in place in case of disagreement and what will happen if the partnership is dissolved.
Partnerships: To be or not to be? — the choice is yours for the making!
