Pros and Cons of a Business Partnership

A business partnership arises when two or more people (up to twenty) have a business venture where the purpose is to generate a profit, without having formed a company. Business partnerships can be very effective and enable entrepreneurs to achieve great success. However, it is essential that adequate research is carried out before deciding on the partnership structure for your business.

Business PartnershipAdvantages of a business partnership:

The partnership has no tax liability.

It’s easy and cost-effective to set up and run.

It’s easier to raise finance as a partnership than as a sole trader.

You’ve got access to a wider pool of knowledge when it comes to decision-making, skills and contacts.

Your chances of improved management are higher.

The business is likely to benefit from the combination of different skills and moral support.

Your accounts information is not made available to the public.


Disadvantages of a business partnership:

All partners are jointly liable for the business debts. Any one of the partners can be sued for the full partnership debt.

If a partner is sued but cannot pay the third party, the third party may pursue the remaining partners.

If the partnership doesn’t have enough assets to repay business debts, creditors can seek to take partners’ personal assets.

You can’t transfer your partnerships share without the full consent of other partners.

The business may become unstable if one partner wants to leave or dies.

Profits need to be shared; what if one partner is doing all the work?

The business may have a limited life due to a partner leaving, retiring or dying.


Partnership Agreement:

If you plan to start a business with one or more people, and you’re not going down the limited company route, you’ll need to set up a business partnership, whereby each of the individuals takes ownership of the assets and responsibility for any liabilities.

When setting up a business partnership, it’s essential to draw up a partnership agreement. Although not required by law, this can be useful in resolving disputes and outlining the rights, responsibilities and obligations of each partner. It can also outline how profits and liabilities are to be shared.

In addition, it can set out what should happen in any one of the following events:

  • A partner decides to leave the partnership
  • The death of a partner
  • The retirement of a partner

If the business were to fail, all partners would most likely be jointly and severally liable for any or all debts. This means that even if one partner has resources and the others have none, all partners may be pursued for the full debt.

Even if you don’t draw up a partnership agreement, business partnerships are still subject to the provisions of the Partnership Act 1890. This, however, will be more restrictive than your own agreement.

A partnership is a separate legal entity recognized under law and has its own rights and responsibilities. A partnership can sign contracts, obtain credit and borrow money- although as a start-up you may be required to provide a personal guarantee for any credit received.

When starting a partnership, make sure to draft an agreement in writing. Contact an impartial legal adviser for assistance. I’ve seen the best of friends fall out over business decisions where there was no written agreement in place, and it’s not a pretty sight!


Is a partnership right for you?

Partnerships are a popular way for budding entrepreneurs to get their business off the ground. As the old saying goes: ‘Two brains are better than one’. However, it is essential that each personality in the partnership will suit each other as it can get complicated. Prior to launching the partnership, you should set business goals that everyone is content with and ensure the partnership is mutually beneficial. Always remember, it is ok to part company if things don’t work out. Shutting down a partnership is easier than winding down a company, where liquidation and insolvency is necessary.


Working with Russell and Co.

Our company formation team can help you meet all your legislative requirements when setting up a partnership. For example, the business name of a partnership must be registered with the Companies Registration Office. The partnership must also be registered with Revenue for tax purposes. We can handle all the paperwork and ensure the partnership is set-up to the required standards.

In regards to accounting, working with Russell and Co. ensures your bookkeeping, payroll and accounts are carried out properly. This avoids unnecessary problems, particularly in relation to salaries and profits.

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