There are a lot of exciting aspects to starting a business. You might be ready to secure a location that gives you exposure to potential clientele, hire promising talent and engage in an advertising campaign that sets you apart from the competition. But before you get to that point, you have to decide which business structure best positions you for success. After all, there are advantages and disadvantages to each, and choosing the wrong one for you could hobble your ability to run your business as you see fit.
So, which business structure is right for you? It really depends on the circumstances and how you want to run your business. This week, though, we want to look at the potential risks and rewards of a partnership since it’s a very common business type utilized by entrepreneurs.
The benefits of using a partnership structure
There’s a reason that partnerships are so popular. Depending on the type of partnership you utilize, you could experience any of the following benefits:
- Retained control: Unlike a corporation where you relinquish business decision-making power to a board of directors, with a partnership you and your partners continue to control important business decisions, thereby ensuring that the business is run as you see fit. You can also use your partnership agreement to specify how these difficult decisions will be made, even if there’s disagreement amongst the parties.
- Financial incentives: Income generated from a partnership is taxed as personal income. This differs from taxation on a corporation, where income is taxed at the business level and then again at the personal level. Therefore, with a partnership, you might be able to generate more take home pay.
- More funding opportunities: Starting a business as a sole proprietorship can be challenging since you have to raise capital on your own. In a partnership, though, you bring additional resources to the table that can help get your business successfully off the ground.
- Additional experience: As your business grows, you’re bound to face new circumstances that you never expected. And some of them might fall outside of your expertise. With a partnership, though, you can bring in a wide breath of experience to help run your business. If you choose your partners carefully, then you can round out your business and better position it for success in the marketplace.
Are there disadvantages to a partnership?
Yes. There are some that may or may not be problematic for you. For example, compared to a sole proprietorship, you’ll have to share the profits of your business with your partners. You’ll also have to share your decision-making power, which can be difficult to do if the business is based off your idea. Also, depending on the type of partnership you utilize, you may be exposed to more personal liability if something goes wrong with your business. That said, there may be ways to more fully insulate yourself from some of these risks.
Which business structure is right for you?
Only you can answer that question. And you can find the answer that best protects your business and financial interests by researching the various structures available to you. Only by educating yourself will you learn of the advantages and disadvantages of each business type, thereby allowing you to make the informed decision that’s right for you. Hopefully then you can move forward with confidence as you set out to build a business that’s profitable and beneficial to your clients.