{"id":170301,"date":"2022-09-01T08:00:52","date_gmt":"2022-09-01T07:00:52","guid":{"rendered":"http:\/\/realbusiness.co.uk\/?p=170301"},"modified":"2024-12-16T11:52:20","modified_gmt":"2024-12-16T11:52:20","slug":"advantages-disadvantages-business-partnerships","status":"publish","type":"post","link":"https:\/\/realbusiness.co.uk\/advantages-disadvantages-business-partnerships","title":{"rendered":"The Advantages &#038; Disadvantages Of Business Partnerships"},"content":{"rendered":"<div class='booster-block booster-read-block'><\/div><p><span style=\"font-weight: 400;\">Business Partnerships are a type of company structure in the UK, often seen in professional services like Solicitors, Architects and GP practices.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">A Partnership is when two or more people join forces to create a business and in this type of structure, each person in the partnership shares joint liability and responsibility for business growth and debts.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It\u2019s very important therefore that partnerships trust each other fully, can communicate and work well together, whilst having legal protections in place in the form of a partnership agreement.\u00a0<\/span><\/p>\n<p><strong>Advantages<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Forming a partnership has various benefits. Here are some of them:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Shared responsibilities<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Combined resources and skill sets<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Mutual encouragement<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Divided Risks<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Increased Business Trust<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Disadvantages<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Differences in opinions and goals\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Conflicts<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Limited control over the business\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Risk of unequal efforts<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Liability for each other\u2019s debts and other obligations.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Read on for more details on the advantages and disadvantages of business partnerships so that you can make an informed decision if this business structure is right for you.<\/span><\/p>\n<h2><strong>What Is A Business Partnership?<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">A partnership means two or more individuals or companies set up a business together. They become joint owners of the business meaning that they share any profits and losses incurred. Partners share equal decision-making responsibility in the day-to-day operation of the company.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Partnerships can range from casual verbal agreements to signed contracts. When signing a partnership agreement with your friends, workmates, or even family members, there are important details that must be stipulated in the contract. This includes each of the partner\u2019s rights, duties, pay terms, as well as their ownership percentage.<\/span><\/p>\n<h2><strong>Advantages<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">Forming a partnership can offer many advantages if you choose the right partner. You spread your financial risk, whilst pooling ideas, expertise, and skills.\u00a0<\/span><\/p>\n<p><strong>Shared workload\u00a0<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">With multiple partners managing a business, workload can be spread across more than one person. This means that more work can be completed in the same amount of time as it would take one person to complete the same task.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This advantage means that the business can diversify the type of work and clients that it brings in. If you have different skill sets or expertise amongst partners, each will be more suited to a particular area of your service delivery, whilst still enjoying the benefits of having a supportive team behind them.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">For example, one person may have HR experience, one may be a whizz with marketing, while another has a great head for numbers &#8211; this all adds up to a well-equipped management team.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">By being able to spread the day-to-day workload across the partnership, more time is available to discuss bigger projects and strategies that will work to build and drive the business forward.\u00a0<\/span><\/p>\n<p><strong>Pooled Resources\u00a0<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Being able to pool resources is an excellent benefit of working in a partnership. From finances, to supply networks, business connections, and assets, being able to combine these valuable complementary areas into the business can help to grow the business much more successfully than if you were working alone.\u00a0<\/span><\/p>\n<p><strong>Increased Expertise\u00a0<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Being in a business partnership means you\u2019ll have access to more resources and talents. With each partner contributing his\/her unique skills and expertise, you\u2019ll be able to double down on your strengths.<\/span><\/p>\n<p><strong>Motivation &amp; Support<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Each person in the team will bring their own life experiences and professional areas of knowledge. This means that when it comes to big business decisions, the partnership can seek motivation and support from others on their side when needed.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This is great when you want to brainstorm ideas, understand if an opportunity is worth pursuing, or need accountability to stay on track. This benefit is particularly beneficial should the business hit hard times.\u00a0<\/span><\/p>\n<p><strong>Spreads Risk\u00a0<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">If things go wrong and business debts rack up, this is shared amongst the partners and doesn\u2019t have to be a burden to one person.\u00a0<\/span><\/p>\n<p><strong>Credibility &amp; Trust\u00a0<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Customer perception and experience are very important when it comes to business and a partnership is a type of business structure that can help to build credibility in this area. Customers who see business partnerships often assume there is a good level of competency and trust within the business. As a result, some may be more inclined to spend their hard-earned cash with this type of business, over a sole trader set up for example.\u00a0<\/span><\/p>\n<h2><strong>Disadvantages<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">Despite the advantages mentioned above, business partnerships also come with possible drawbacks that are worth considering as well. One of the biggest risks is disagreements as this can derail the relationships within the partnership.\u00a0<\/span><\/p>\n<p><strong>Differing Goals<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Every business professional has their own goals. If fellow partners have vastly different visions, plans and ways of doing things, then this could lead to partner disputes.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">It\u2019s important therefore that partnerships promote open discussion and freedom of speech so that each person feels able to say their piece without losing the respect of others.\u00a0<\/span><\/p>\n<p><strong>Disagreements<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Nobody agrees with everyone else all the time but when disagreements can\u2019t be talked through, overcome, or progressed, then there is a risk of business progress stalling. Whilst interpersonal conflicts may cause disagreements, the key to a good partnership is being able to work through this so that business operations aren\u2019t impacted.\u00a0<\/span><\/p>\n<p><strong>Limited Control<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">In a partnership, each person has to be willing to share the decision-making for the business. No one person can override another unless there is a managing partner with a larger stake in the business. Otherwise, all decisions need to be made jointly and with the \u2018bigger picture\u2019 in mind.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The problem is reaching a full agreement usually takes time especially since you have to consider every view of your partners. People who are used to being completely in charge may struggle with this.\u00a0<\/span><\/p>\n<p><strong>Unequal Contributions<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Perceived imbalances in workloads and rewards may lead to feelings of resentment among partnerships. To avoid this becoming an issue, it\u2019s important to be clear from the offset what the division of duties, responsibilities, and contributions for each partner is expected to be.\u00a0<\/span><\/p>\n<p><strong>Shared Liability For Debts<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">All partners share collective accountability for debts and liabilities.\u00a0 So, if one person mishandles the cash and other assets, everyone will be affected.\u00a0<\/span><\/p>\n<p><strong>When People Want To Leave<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Ending a partnership can be messy when one person decides to leave. If for instance, a partner passes away, becomes disabled, or simply wants out, the other partners may struggle to keep things running smoothly or may not be able to afford to buy the person out.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">To ease this process, have clauses in the partnership agreement set out that address these scenarios and the process that will be followed.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><strong>Types Of Business Partnerships<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">There are a few different types of business partnerships available to business owners. Whilst they all involve two or more individuals or businesses joining forces, there are differences in the way the business operates after it is set up.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The most common types of business partnerships are limited partnerships (LTD) and limited liability partnerships. (LLPs)\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n<p><strong>Limited Partnerships<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">A limited partnership is a type of partnership business structure. It offers a good balance of operational freedom within a scalable business model, with some financial protection.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Limited partners are only liable for the amount of money that they have invested and within this structure, there must be at least one general partner and one limited partner.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">General and limited partners have different responsibilities and levels of liability for any debts the business can\u2019t pay, but all partners pay tax on their share of the profits. The general partner is responsible for the business and has unlimited personal liability (like a sole trader would) while limited partners have protected liability that exceeds their capital invested.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Limited partnerships manage their profits and losses through each person&#8217;s taxes. The general partner pays self-employed taxes on earnings and the limited partner pays ordinary income tax rates.\u00a0<\/span><\/p>\n<p><strong>Limited Liability Partnerships (LLPs)<\/strong><\/p>\n<p><span style=\"font-weight: 400;\">Limited liability partnerships (LLPs) share similar attributes with limited partnerships while providing liability protections to all partners.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">In an LLP, partners enjoy the limitation of personal liability to their invested capital, even as they participate in running the business. So if an LLP incurs substantial debt, partners do not have to bear it beyond their initial investments.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">LLP partners pay taxes proportionate to their business share profits. The major advantage of this structure is that personal assets stay protected in case of business losses or liability issues.<\/span><\/p>\n<h2><strong>Which Types Of Businesses Suit Partnerships?<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">Launching service companies and manufacturing plants requires a hefty upfront capital. This can be challenging for solo founders which can make them well-suited to partnership business structures..\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Service businesses like law firms, restaurants and home-cleaning businesses can be well suited to the shared ownership model of a partnership. In this setup, partners divide operational duties. They also mentor staff and oversee departments based on their strengths.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Costly ventures such as manufacturing, retail stores, and tech startups can also benefit from partnerships because such ease funding burdens.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">However, partnerships are not ideal for businesses requiring unified creative direction and client interactions. For instance, design studios, PR agencies, consultants, and authors often avoid partnerships to retain decision authority. This also allows them to safeguard their branding.<\/span><\/p>\n<h2><strong>How To Set Up A Business Partnership<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">If you\u2019re planning to start a company with a partner or partners, you\u2019ll have to do some groundwork before you can formalise your business alliances. First, you have to identify your needs as a co-owner.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Are you seeking a partner with complementary expertise or are your needs in the investment funding? Once you\u2019ve determined your compatible collaborators, follow these steps in structuring a legal business partnership in the UK.<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Select a business name and have it registered with the Companies House.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">After that, draft a partnership contract stipulating each partner\u2019s duties and stakes.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Appoint one \u2018nominated partner\u2019 to handle taxes and record keeping.<\/span><\/li>\n<li style=\"font-weight: 400;\"><a href=\"https:\/\/www.gov.uk\/set-up-business-partnership\/register-partnership-with-hmrc\"><span style=\"font-weight: 400;\">Register with HM Revenue and Customs<\/span><\/a> <span style=\"font-weight: 400;\">(HMRC).<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">After successful registration, open a business bank account. Process any necessary permits and licences.<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Do remember that steps may vary slightly for a<\/span> <a href=\"https:\/\/www.gov.uk\/guidance\/set-up-and-run-a-limited-partnership\"><span style=\"font-weight: 400;\">limited partnership<\/span><\/a><span style=\"font-weight: 400;\"> and <\/span><a href=\"https:\/\/www.gov.uk\/guidance\/set-up-and-run-a-limited-liability-partnership-llp\"><span style=\"font-weight: 400;\">LLPs<\/span><\/a><span style=\"font-weight: 400;\">. However, following the HMRC guidance, you can easily establish your business partnership in the UK.<\/span><\/p>\n<p>&nbsp;<\/p>\n<h2><strong>How to End A Business Partnerships<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">At some point, every business partnership will wind down. It could be due to a number of reasons\u2013 irreconcilable differences, the death of a partner, or retirement.\u00a0\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">When closing a business partnership, the biggest steps to follow involve limiting legal liabilities, dividing debts and assets equitably, and mapping out exit strategies. To make this process less stressful and more efficient, consider hiring a lawyer to draft a binding dissolution agreement.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">This contract should include details on how you will distribute assets and pay debts. Once signed, the dissolution agreement must be fully executed. If for instance obligations are not met, wronged partners may pursue legal actions.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Remember, open communication is key when it comes to ending a business partnership. It\u2019s likely that your paths will cross again, so being able to leave, without any bad blood or loose ends is the ideal situation.\u00a0<\/span><\/p>\n<h2><strong>Summary<\/strong><\/h2>\n<p><span style=\"font-weight: 400;\">Business partnerships are a popular type of business structure that allows two or more people to form a business together. They\u2019re a collaborative venture that pools funds, knowledge, expertise, strengths and assets, but losses must also be shared.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The main positives are the increased capacity for workload, and being able to scale up and access a wider collective skillset. On the downside, each individual must be able to share decision-making and be comfortable with not having direct control.\u00a0<\/span><\/p>\n<p><span style=\"font-weight: 400;\">The key to a successful business partnership revolves around communication, being able to work well with others, overcoming difficulties, and making sure that personal preferences and mindset suit this type of working agreement with others.\u00a0<\/span><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Business Partnerships are a type of company structure in the UK, often seen in professional services like Solicitors, Architects and GP practices.\u00a0 A Partnership is when two or more people join forces to create a business and in this type of structure, each person in the partnership shares joint liability and responsibility for business growth [&hellip;]<\/p>\n","protected":false},"author":26234,"featured_media":170305,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[11974],"tags":[11942,3602,11978,2136],"class_list":["post-170301","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","tag-aug-p","tag-business-partner","tag-p2022","tag-partnerships"],"views":2830,"_links":{"self":[{"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/posts\/170301","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/users\/26234"}],"replies":[{"embeddable":true,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/comments?post=170301"}],"version-history":[{"count":0,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/posts\/170301\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/media\/170305"}],"wp:attachment":[{"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/media?parent=170301"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/categories?post=170301"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/realbusiness.co.uk\/wp-json\/wp\/v2\/tags?post=170301"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}