Do You Need A Business Partner?

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Other than the legal aspects of having a sole proprietorship or a partnership, you’ll have to weigh the advantages and disadvantages of each scenario and assess your strengths and weaknesses accordingly.

Generally, here are some questions that you can ask yourself.

Do you prefer to do things on your own?

The longer you have worked solo, making decisions without consulting anyone, the more difficult it would be for you to share the decision making with partners. If you have a strong personality and want total control of everything, a partnership would not be your cup of tea.

A partnership is a team and you would need to invest time to nurture the relationship. You cannot make decisions without consulting your partner. If you don’t come into the business with an open mind and are not able to talk to your partner, you have a sole proprietorship mindset.

If you think a partnership for you, the next step is to find a suitable partner. The qualities that you should look for are sincerity, honesty and commitment to shoulder and share the risks and burdens.  All must agree to look at the ‘macro view’ rather than harping on trivial matters.

Do you need more expertise?

Partnerships are usually set up to reap the expertise that each person can bring into the business. When you take on a partner, you’d be sharing the responsibilities and may be able to offer a greater range of services. Look at your level of expertise and see whether you’re an all-rounder. Ideally, partners should complement each other.

Since it is easier to enter into a partnership than to get out of one, it is good to make everything clear at the outset. Set out the duties and responsibilites of each partner in detail in an agreement, which should include division of labour, how much capital each is to contribute, how profits are to be shared, how disputes would be resolved, what happens if the partnership doesn’t work out and what happens if there’s an addition of

partner(s).

The other advantage of a partnership is that you will have somebody to advise you, bounce ideas off of or hold you when you stumble.

Do you have sufficient financial resources?

Evaluate whether you have the financial resources to go it alone. A sole proprietor can take a loan and overdraft to finance the business.

If you cannot get the fund, you’d have to go into a joint venture. Don’t go into a partnership with someone who doesn’t put money, or something of equivalent value, into the deal. An equal capital commitment decreases the chance of your partner walking away from the business, leaving you with all the responsibilities.  

Need a backup?

A sole proprietorship is a lonely business. You might not be able to share with friends who are themselves involved in business or talk to your other half about your business problems. Partners have to be honest with one another and discuss issues openly when problems arise.

A lot planning is required in a sole proprietorship. When a sole proprietor falls ill, especially  during the early days of the business, he has to continue working since he has no one to rely on.

Last words of advice

It is always safe to go solo first and start small because you can never tell if you business would succeed or fail. From there you would gain experience, grow the business and when the time comes, you can invite partners to come in. You are then on firmer ground to negotiate and have greater bargaining power.

A sole proprietorship is relatively cheap and easy to maintain. However, you are not shielded from business risk. If the business is in debt, creditors can go after your personal assets.

Alternatively, you could form a private limited company with a sleeping partner, who would not be making any decisions with regard to the running of the business.  A shareholder in a limited company, in the event of its becoming insolvent would only be liable to contribute the amount remaining unpaid on the shares (usually zero, as most shares are issued fully paid). Normally, sole proprietorship choose to have their spouses as sleeping partners.

The disadvantage here is the high cost in forming and maintaining the company. Also, there are a lot of requirements, such as provision of audited accounts and filing of annual returns, to adhere to.

For joint ventures, the parties can either form a partnership or a private limited company. As far as partnertship is concerned, the business risk is very high.  All partners have to share the liabilities. If your partners cannot pay, you have to bear 100% of the liabilities. Hence, the better option is to set a limited liability company in which partners are shielded from business risk. If the company is in debt, debtors cannot sue the shareholders personally.

(Source: Personal Money)