One way of getting started in business is to set up a partnership with one or more other people. Partnerships can be a great way to succeed in business. It means each partner can concentrate on what they’re good at, and hopefully achieve much more than the sum of each person’s own efforts.
What You Need To Know About Partnerships
But going into partnership calls for a lot of thought. It also has legal implications. In this article we will take a look at setting up a partnership:
Does each partner have complementary skills?
You need to consider this from the outset. Each partner should be able to contribute something that makes up the whole. For example, one partner might be good at selling while the other partner is good at admin and so on. It might not be such a good idea if each partner wants to do the same thing, and there’s no one to do the other stuff.
Can you work together?
You don’t actually have to be friends with your partners unless you want to be! It can help in some ways, but in other ways friendship can get in the way of business. You’ve got to be able to work together efficiently though.
Partnerships are quite often husband and wife teams – and they can be very successful. But ask yourself if working together and living together is for you!
How about a sleeping partner?
A sleeping partner could be a good choice if there is a partner who wants to invest in the business and share the profits but not actually work in it.
What’s important to know legally?
In law, a partnership consists of two or more people trading together. Partners working in a business have an equal say in decision making. They also share any losses equally. That’s unless they are nominated as limited partners who have limited liability but who cannot be involved in the management of the business. What’s crucial to realise about this: If one partner makes losses, runs up debts or commits the business to something the other partners will be responsible too even if they didn’t know about it.
Partners also have a special status for tax purposes. It’s not the same as being a sole trader or a company director.
Setting up a partnership agreement
A partnership should always have a partnership agreement – although legally you don’t have to have one.
Any solicitor can draw up such an agreement, although it is perfectly possible to draw up your own partnership agreement if you want to. It should cover : Whether decisions may be made separately or jointly, what each partner is entitled to in terms of pay/profit sharing and what procedure should be followed if any partners wish to leave, or if the partners fall out for some reason.
If in doubt about your legal and financial status always take individual advice from a lawyer and/or accountant before starting to work with other people as partners.
More Information. Here’s a handy article which explains how other kinds of business format you might want to use work, including sole trader businesses and limited companies.