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advantages and disadvantages of partnershipForming a business from the ground up is no small feat, regardless if you’re doing it alone, as a sole proprietorship, or with one or several other people, referred to as a partnership. No matter how many people are involved, there has to be an understanding of the ins and outs not only how a business is supposed to run, but also how the industry in which the business exists works. There are benefits and drawbacks of both types of businesses, and deciding on one as opposed to the other depends on many factors, including the type of business, the size of the operation, the money needed to get it off the ground, and many other factors.

Our focus today is on the pros and cons of the partnership. As you can probably imagine, the more people that become involved in this type of business, the more complicated it can be to run. But for every complication or potential issue that may pop up in this setting, there’s a positive aspect that (hopefully) balances out the negative ones. If you’re considering starting up your own small operation, the following article should give you a good idea of the ups and downs to expect if you decide the partnership is the right path to follow. For the budding entrepreneurs out there, you may be interested in this course on how to start a business for the beginning, then this article on business development strategies for growing your business later on.

What is a Partnership?

Before we get started discussing the good and the bad aspects of a partnership, let’s briefly explain what it is. We mentioned earlier that this type of business involved two or more people, wherein each person contributes money, labor, skills, or anything else of value to the business, and as a result, each person shares in either the profits or loss of the business. Because the details of this type of business can get confusing, a legal partnership agreement may be drawn up in the beginning. Though not required by law, the agreement is highly recommended for prospective business partners, and it lays out how the decisions concerning the business will be made: how to divvy up profits, how to resolve disputes, how to bring in or buy out partners, and how to dissolve the partnership, among other things. To learn more about a certain kind of partnership, this course on partnerships at startups may be helpful if this is the path you want to take.

There are three types of partnerships:

  1. General Partnership: Profits, liabilities, and management responsibilities are all equally divided up among the partners, or in another way which is spelled out in the agreement.
  2. Limited Partnership: More involved than the general partnership, this version is better-suited for short-term projects, and states that each partner’s liability and input are dictated by the percentage of their investments.
  3. Joint Venture: The joint venture is basically a short-term general partnership, usually lasting for one project.

The Pros of Partnerships…

Now that you have a better idea of how a partnership works, let’s now discuss some of the benefits of starting up one of these types of businesses.

…And Now the Cons

The partnership seems like a pretty sweet deal, doesn’t it? It’s perfect for those intrepid entrepreneurs out there that want to start a business, but lack either the funds, experience, or know-how to go it alone. If you have that rare combination of business-savvy, but also are able to compromise and get along well with people, maybe the partnership is right for you. If you have the former, but lack the latter, this course on working with difficult people will show you how to deal with tough coworkers.

Page Last Updated: February 2020

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