Steps to create a Partnership Company
Starting a partnership company involves more than just a bright idea and a shake of a hand. Forming a successful business partnership requires a knowledge of the law, research and patience. Here are the steps to open a partnership company.
1. Choose Your Partners
The selection of your partner or partners is an important decision; choose someone you trust and who you can see yourself working well with for many years. You should be aligned on a vision for the company, how to manage the business and how to share profits and losses.
2. Decide on the Structure
You and your partner will need to determine the ideal relationship and governance structure, as well as other legal documents that are necessary. Consider the advantages and disadvantages of each option, such as a limited liability company (LLC), a general partnership, or a limited partnership.
3. Establish a Partnership Agreement
A formal partnership agreement should be in place to define the roles and responsibilities of each partner, as well as how profits are divided between the partners, who makes decisions on spending, and how long the partnership agreement will last (or if it is a long-term partnership).
4. Obtain Financing
Put a financial plan in place by establishing a budget and a bank account, and possibly obtaining financing in the form of loans or investments.
5. Comply with the Law
Ensure that you are compliant with all necessary legal documents, such as setting up a business license, and registering the business with the state.
6. Market Your Business
Begin marketing your business as soon as possible in order to ensure that you are achieving sales growth and profit. Consider traditional and social media marketing, advertising and promotion to get the word out about your business.
7. Manage Operations and Cash Flow
Carefully manage operations and cash flow in order to remain profitable. Monitor spending and keep records of expenses, and make sure that the company has sufficient resources and staffing to meet customer needs.
Legal Aspects of Partnership Formation
When you and your business partner enter into a partnership, there are certain legal considerations that you should be aware of.
1. Business Registration
There are a variety of ways to register a business, depending on the structure and purpose of the business. A partnership can be registered with the county clerk’s office, state department of corporations, or secretary of state.
2. Partnership Agreements
A written partnership agreement should be established with each partner’s rights and responsibilities outlined. This document should include information such as profit and loss sharing, responsibility in decision-making, financial obligations, and other logistical concerns.
3. Taxes
You must determine the taxes that you owe and how you will pay them. The Internal Revenue Service (IRS) will consider the business a separate taxable entity, so the partnership must file a separate tax return.
4. Liability
Partners will be liable for any debts or other obligations in proportion to the amount each has contributed. Partners are usually not liable for any obligations of another partner, however, it is possible for one partner’s actions to be attributed to all partners.
5. Dispute Resolution
Partnerships dissolve when there is a disagreement. If the partnership agreement does not address the settlement of disputes, the partners may have to bring the case to court.
Raising Additional Funds
For growing partnerships, there may come a time when additional funds are needed in order to sustain the business. Here are some ways to raise capital:
1. Debt Financing
Partnerships can use traditional bank financing. This may include obtaining a loan or line of credit.
2. Equity Financing
Bring onboard additional partners to increase the capital available. This could mean inviting new investors, or increasing ownership stakes for the current partners.
3. Grants
Look into nonprofit organizations and government agencies that offer grants to small businesses.
4. Crowdfunding
Many startups have had success with crowdfunding platforms. Use a website to solicit funds from investors in exchange for a stake in the company or other rewards.
5. Friends and family
It may be possible to access funds from a family member or friend who can offer financing.
Successful Partnership Company
Creating a successful partnership company requires more than just great ideas and a handshake. Here are five tips for ensuring a successful partnership:
1. Open Communication
It’s necessary that partners have open communication and honest dialogue in order to be successful. Talk through potential challenges and celebrate successes.
2. Division of Tasks
A division of tasks should be established in order to ensure that all partners are contributing equally. Determine what is most suited to each partner’s skillset and adjust if needed.
3. Setting Goals
Partners must come up with goals and objectives for the business. This will help to keep the company on track and enable the partners to measure progress and success.
4. Have Patience
Partnerships take time and dedication in order to be successful. Patience is necessary while the partners work together to meet current and long-term objectives.
5. Plan for Exit
Be prepared for the partnership to end by creating a plan for a potential exit. This will help to preserve the relations between the former partners, as well as a continuity of the business.
Creating and Maintaining Trust
Trust is essential for a successful partnership. Here are five tips for creating and maintaining it:
1. Respect
Mutual respect for each partner is essential for a successful partnership. This includes respecting each other’s opinions, skills and contributions.
2. Honesty
Partners must be honest with each other in order to build trust. Be open and candid in communication in order to ensure that everyone is on the same page.
3. Fairness
Partners must strive to be fair in all decision-making in order to ensure that everyone’s needs and objectives are taken into consideration.
4. Accountability
Hold each partner accountable for adhering to the agreed-upon expectations. Doing so will help to build trust and ensure that everyone is contributing equally.
5. Flexibility
Partners must be agile and adaptable in order to build trust. Things may not always go according to plan, so it’s beneficial to be able to make changes quickly.
