When you create a business, you have a lot to think about, including securing commercial property, hiring talent, and putting together a marketing plan. But before you get to that point, you have to settle on a business structure that best positions you for success. You have several options here, including sole proprietorship, partnership, and a corporation. But how do you know which one is best for your business?
The only way to make the right decision is to ensure that you’re informed. If you make your choice on a whim or a hunch, then you could find yourself stuck in a business arrangement that proves detrimental to your business’s long-term success and your personal well-being. That’s why this week on the blog we want to take a closer look at partnerships so that you’re better able to gauge if that structure type is right for you.
The advantages of a partnership
On its face, a partnership brings together multiple individuals to form a business. Here are some of the advantages of taking this approach:
- Control: In a partnership, you and your partners retain a significant amount of control over business operations, which sets this structure type apart from a corporation. You’ll just want to make sure you know how to navigate situations where partners don’t agree on a course of action.
- Varied experience: If you pursue a sole proprietorship, you’ll be limited to your own expertise. By creating a partnership, on the other hand, you can bring other people into your business who have various backgrounds and experiences. This can leave your business well-rounded and prepared for the future ahead.
- Less startup costs: When you use a partnership, you have various avenues to pursue startup capital. Otherwise, you might be limited, which can curtail your ability to get your business off the ground as quickly and as smoothly as you hope.
- Tax advantages: Corporate income is taxed twice, once at the business level and then again at the personal level. With a partnership, your business’s income is only taxed once, that being at the personal level. This can save your business a significant amount of money and increase your income.
Are there disadvantages to a partnership?
Yes. A partnership isn’t for every business. Therefore, before you jump into a partnership, you need to understand these disadvantages:
- Liability: In some partnerships, you expose yourself to personal liability. If you’re not careful, then, you could end up on the hook for personally paying for your business’s debts and other obligations.
- Lack of control: Although a partnership can give you more control over your business than a corporation would, it gives you less autonomy than a sole proprietorship. You’ll want to figure out exactly how much control you want over your business.
- Profit sharing: While a partnership might make it easier to raise the funds you need to get off the ground, it also means that you’ll have to split the profits. This could reduce the income that you were hoping to acquire.
Finding the right structure for your business
There are several business structures to choose from when starting your business. It might seem like a small decision, but it’s actually one of the biggest you’ll have to make.
Therefore, before settling on a structure type, you should fully inform yourself as to your options, paying particularly close attention to the risks and rewards of each. Hopefully then you’ll be able to start your business off on the right foot.