Partnership – Yes or Not?
20 Mar 2015
When starting up a business an entrepreneur may often face confusion regarding what form of operation the business should adopt. Be it a Public Limited Company, Private Limited Company, Sole proprietorship, or partnership, each has its own set of benefits and drawbacks. While the formation of public and private limited companies involves a great deal of paper work and legal formalities to be fulfilled, the drawback for a sole proprietorship is the fact that all responsibility lies on the sole owner which could become taxing in the long run. However, choosing to form a partnership may be a brilliant idea in many cases.
A partnership allows 2 or more individuals to jointly own the business and share profits and losses equally or as per decided in the terms of the contract. Even though a partnership could lead to a wide variety of issues such as information being let out of the company, a partner being unfair or unjust in the business and also a great deal of politics, it has many more benefits.
For one, being in a partnership means you have access to more capital. In contrast to a sole proprietorship where the investment in the business will only be the entrepreneurs personal investments alone, in a partnership all partners will contribute a certain amount of capital in order to get the business running. Additionally, there’s two minds instead of one. In case of a problem or confusion that may occur, a partnership will allow two or more individuals to come up with a solution instead of a sole proprietor dealing with it by himself.
Moving on, when one is in a partnership, the losses the business encounters also are shared equally or as per the terms specified in the partnership deal. As a result, the burden of the loss does not fall onto one person. Additional benefits of forming a partnership are that if one partner goes on leave, he can be assured that the other partners will ensure the smooth running of the company, and does not have to worry about what will happen without him. Responsibilities can be shared and departments can be divided off, thus leading to easy operation of the company.
Whether a partnership will be the best choice in every situation cannot be determined, but the form of business that should be adopted when forming a company depends on several factors which need to be considered. Whether or not the individual has enough funds and resources to form the company on his own, or has in mind certain people who could be responsible partners for the business are important factors that could determine the business form.
Needless to say, the kind of business that one sets up determines its future growth and success to a great extent and thus this decision should be made wisely and over a period of time.