There are a lot of decisions to make when starting a business. Choosing a location, hiring talent, developing a marketing plan and securing supply chain contracts are amongst them. However, there’s another step you have to take early on if you want to ensure you create the type of business that’s right for you: choosing your business structure.
There are several business structure options to choose from, too. A sole proprietorship allows you to retain full control over your business operations, and it might maximize your income, but it also leaves you susceptible to extensive liability. A corporation might provide you with ample liability protections, but it can cause you to lose a lot of control over your business and the decisions that’ll steer its direction. That’s why many new businesses choose to utilize a partnership structure. But is it right for you?
Why a partnership might be right for you
There are multiple advantages to a partnership business structure. Amongst them are the following:
- Diversity of expertise: A partnership allows you to bring together individuals of varying expertise who can diversify your business approaches. This can ensure that your business takes a holistic approach to market challenges, which can give you an advantage over the competition.
- Combination of resources: Raising capital to start a business can be difficult. But if you enter a partnership, you can pool your resources with the other partners so that getting your business off the ground isn’t such a big financial lift.
- Better decision-making: When important decisions need to be made, you can consult with the other partners to acquire differing points-of-view and ensure that the problem is viewed through multiple lenses. This gives you a better chance of resolving the matter in a way that’s truly advantageous to your business.
- More control: With a partnership, you get to retain more control over business operations and the overall direction of your business. Though you’ll likely have to find consensus with your business partners, at least you won’t have to let a board of directors or shareholders steer your decision-making.
- Tax advantages: A business structure can impact how income is taxed, which directly dictates how much you take home. With a partnership, you avoid the double-taxation that’s seen with the corporation structure.
- Stronger borrowing power: In a partnership, you’ll likely present a stronger credit portfolio that’ll make it easier for your business to borrow money. This can give you an advantage as you attempt to get your business off the ground or expand operations.
Are there risks with a partnership structure?
Every business structure type carries some sort of risk. With partnerships, you have to be wary of a few. These include partnership disagreements over important business decisions, exposure to certain amounts of liability and inequal contributions to the business. Fortunately, there are steps you can take to mitigate these risks so that you can ensure your partnership gets off the ground smoothly and stays positioned for success.
Which business structure is right for you?
Only you can answer that question. You have several options to choose from, and the answer will depend on your circumstances and business goals. So, before settling on a structure type and moving forward with the business creation process, you should discuss the matter with your business law attorney. Hopefully then you can move forward with confidence in a way that maximizes your chances of success while reducing your overall risk.