Table of Contents

1. What is a Business Partnership
2. 4 Types of Business Partnerships
3. Qualities to Look for When Choosing a Business Partner
4. How YOU Can Be a Better Business Partner

According to recent studies, two-thirds of all businesses fail. This means that a business has less than a 1 in 3 chance of succeeding. Wow!

What is a Business Partnership

A business partnership is a way of organizing a company that is owned and sometimes run by two or more people or entities. A partnership is a formal arrangement by two or more parties to manage and operate a business and share its profits. The partners share in the profits or losses. The partners invest their money in the business, and each partner benefits from any profits and sustains part of any losses.

Four Types of Business Partnerships

LLC Partnership (also known as a multi-member LLC)

A limited liability company (LLC) can have 1 (one) or multiple owners. Under an LLC, members have a legal shield between their personal assets and the business. This means they generally can't be used for the company's actions or debts, however, they can be held liable for the actions of another member.

Benefits of an LLC partnership include:

• Personal liability protection = members receive legal protection between the business's actions and debts and their personal assets
• Tax flexibility = LLCs can elect to change their default tax classification and be taxed as an S corp or a C corp
• Corporate members = An LLC can have a corporation as a member. Other types of partnerships can't be owned by other businesses, only individuals.
• Anyone can form an LLC = Some partnerships can only be formed by certain professional. An LLC can be formed by most types of businesses.

Limited Liability Partnership (LLP)

A limited liability partnership (LLP) is a type of partnership where the owners aren't held personally responsible for the business's debts and obligations or the actions of other partners.

Benefits of LLPs include:

• Easy to add or remove partners = Using an LLP partnership agreement, you can decide how much each partner is paid from the business and easily add or remove partners.
• Management flexibility = Partners decide how much they want to be involved in the operational and managerial side of running the company, and involvement won't affect their personal liability.

Drawbacks to LLPs include:

• Only available to certain professions = In some states, only approved professions such as lawyers, doctors, etc. can form an LLP
• No tax flexibility = LLPs can't change their tax treatment
• Only individuals can own an LLP = While other partnerships can have a corporation as the owner, LLPs can't.

Limited Partnership (LP)

Limited partners don't make business decisions but usually provide startup funding and capital. They're sometimes called "silent partners". Limited partners invest in the business for financial returns and are not responsible for its debts and liabilities. This silent partner limited liability means limited partners can share in the profits, but they cannot lose more than they've invested. In some states, limited partners may not qualify for pass-through taxation. On the other hand, general partners help manage the company and make business decisions.

An LP must have at least on general partner and one limited partner:

• The general partner is personally accountable for the entire business. This includes its debts and the actions of the other partners.
• The limited partner is NOT personally responsible for the company since they have no decision making power.

A drawback of an LP is that a limited partner can lose their limited partner status if they become too involved in the management of the company.

General Partnership (GP)

General partnerships differ from other partnerships because they do not require you to register with the state. You don't even require a formal agreement. If you and another person conduct business together, you default to being a general partnership. Each partner also has total liability, meaning they are personally responsible for all of the business's debts and legal obligations. That means each partner is legally responsible for the business's debts and actions. If the company is sued or can't pay its financial obligations, the partners' personal assets are at risk. This also means partners are liable for each other's actions. Ownership and profits are usually split evenly among the partners, although they may establish different terms in the partnership agreement.

Benefits of a general partnership include:

• Easy to form and low-cost to run = Since there's no state registration, you don't pay for the costs of forming a business entity
• Tax flexbility = Partnerships can ask to be taxed as a corporation using Form 8832
• Corporate parners = General partnerships can be owned by both indiviudals and corporations

Qualities to Look for When Choosing a Business Partner

1. A complementary skill set

Find someone who complements your skills, not contrasts with them. If you are not good at a particular aspect of doing business, find a partner who is. Someone with a different skill set can add something to your business that may ignite something new and brings much more success than either of you could have achieved alone.

2. Shared goals and values

Make sure that the person whom you are considering as a business partner has business goals that are aligned with yours. In other words, you should both want to create the same thing.

3. Reliability and integrity

“A successful business partnership relies on many things, but trust and reliability are key,” says Greg Mercer of Jungle Scout.

“Being honest partners requires honest, clear communication,” says Capala. “Accountability added to honesty is integrity.”

A good business partner must be someone whom you can trust. Everyone has their own quirks and individual ways to deal with stress, success, and failure, but if you can inherently trust your business partner, you will have a better chance of succeeding as partners.

4. Challenges you

The reality is that you are going to experience days where you feel uninspired, annoyed, and just plain wiped out. One of the benefits of having a business partner on these tough days is that they should be able to reignite your fire.

5. Knowledgeable in your industry

That doesn’t necessarily mean that they must have a deep understanding of the business from the onset—they can learn more by working with you—but they need to know enough that their area of expertise can have a positive effect on your business.

6. Matches your energy

“I was going to say passion, but that word doesn’t go far enough for me,” explains Bryce Welker of Crush Empire. “I want passionate employees, but I need an obsessive business partner.”

For Welker, the difference between passion and obsession lies in one’s need to see something through for the long haul—a quality necessary in a business partner. “If I’m burning the midnight oil, I want them to be right there next to me,” says Welker. “Passion may generate great short-term results, but obsession is what builds lasting empires.”