Benefits and Liabilities of a Business Partner
I often get calls from individuals who are planning on starting a recruiting firm along with a partner. This article addresses these folks directly and outlines the pros and cons of starting a firm in this fashion.
There are many possible benefits, but also many possible liabilities when you enter a business partnership. It is important that the partnership agreement protect both parties in case the partnership does not work out successfully.
Many partnership agreements assign 49% of stock to each partner with 2% of stock outstanding. If one person wants out of the partnership, the remaining partner then receives the outstanding 2% of stock, providing them with majority ownership. This is extremely important if the original partner sells their stock to someone who is not on the same page as the original two owners.
Some benefits of partnership include the following:
- Additional knowledge, skills and experience
- Shared liability
- Additional cash flow
- Sounding board
- Duties and responsibilities split
Some liabilities of partnerships include the following:
- Distribution of duties and responsibilities might not be fair
- One partner could have a stronger work ethic
- Disagreements can cripple growth
- Must be in agreement on major decisions
- Revenue, income and distribution of funds can be challenging
- Neither partner must concede
Before you make this decision, write down the pros and cons and determine your real reason for seeking out a partner. Often, opening your business without a partner is less hassle and the better decision.
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