26 Feb Business Partnership Structure – Key Aspects To Consider Before You Shake Hands
Business Partnership Structure is a relationship between two or more persons carrying on a business in common with a view of profit. It allows people to pool their financial and non-financial resources for the benefit of the business. In New South Wales there are three types of business partnership structure – normal, limited and an incorporated limited partnership, the choice would depend on purpose and intentions of partners.*
Whatever the case maybe, in this series of blog posts, I will talk about a few key aspects of business partnership to consider before you shake hands. Feel free to contact us to guide you through other requirements and to prepare a written agreement suitable for you.
First and foremost – How well do you know your new partner?
If you have just met the person then you need to tune in your business senses, dig in deep to find out absolutely everything you can about the person. This may sound tedious, but you are taking on a risk to share your business, including liabilities, with this person. Hence, this is important before the person either disappears with your money or you wake up with police on your doorstep. At A&J Montgomery Legal we have access to resources to undertake such investigations.
Second – Business value
Valuation is not necessary for a new business, whereas for an established business you have to estimate it’s value and question the offer from the new partner. Answering this question will avoid disputes regarding future capital contribution and profit sharing. Before you make this decision it is wise to consult your accountant or a financial adviser.
Third – Roles and responsibilities of partners
This is important for daily operation of the business and growth of the business. While partnership allows people to pool their individual talents, however you want to align profit sharing with individual efforts and rewards. This discussion should also help you assess your new partner’s attitude towards future success of the business and provide a basis for accountability.
Finally – Resolving dispute
You may consider this premature, but you don’t want to search for an option when a dispute presents itself. Instead, you want to resolve it as quick as possible. There are various options, from private mediation to assistance from professionals. The option you choose should fit your budget but should also provide a quick resolution.
*I will focus on normal business partnership structure in this article. Normal partnership is simply two or more persons carrying on a common business together. Given that limited and incorporated limited business partnership structure are rather different in nature and purpose, I recommend you to contact us for further information and to discuss which of these structures are suitable for your business.