Business Partnerships
Advantages and Disadvantages

Business Partnerships Advantages and Disadvantages

Business Partnerships - In creating the type of business formation known as a Partnership, two or more peopleshare ownership of a single business. The shared ownershipconcept that characterizes the Business Partnerships afford distinct advantages and disadvantages.

Business Partnership Advantages

  • Partnerships are relatively easy to establish; however time should be invested in developing the partnership agreement.

  • With more than one owner, the ability to raise funds - Debt vs Equity may be increased.

  • The profits from the business flow directly through to the partners' personal tax returns.

  • Prospective employees may be attracted to the business if given the incentive to become a partner.

  • The business usually will benefit from partners who have complementary skills.

Business Partnership Disadvantages

  • Business Partners are jointly and individually liable for the actions of the other partners.
  • Profits must be shared with others.
  • Since decisions are shared, disagreements can occur.
  • Some employee benefits are not deductible from business income on tax returns.
  • The partnership may have a limited life; it may end upon the withdrawal or death of a partner.

Questions that should be decided before entering into a Partnership Agreement:

  • Are Partners allowed to participate in activites in competition with the Partnership?

  • For what time period is a Partner prohibited from competing after withdrawal?

  • Should Partners be compensated for services in addition to share of profits?

  • What is the voting percentage required to amend any part of this Agreement?

  • What percent of vote is required to dissolve the Partnership?

  • How will Partnership assets be distributed on Dissolution or Dissociation?

Partnerships Advantages and Disadvantages
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