How to Set Up a Partnership for Your Shared Business Success

Tom
Tom September 2022 Content Creator 7 min

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They say two heads are better than one. In business, this is certainly true—as long as those heads aren’t butting together over every decision, financial or otherwise. 

Setting up a business partnership is a great way to share the otherwise strenuous workload of running a business. Not only that, but you can double your chances of success by bringing different strengths and expanding the versatility of your business. 

In this post, we’re going to go over the basics of starting up a business partnership, from ideation to legal formation. 

Choose the right business partners

Choosing business partners is as much a personal decision as it is a professional one. You may find someone who is driven, financially stable, and agrees to pursue the same business goals that you do, but you soon discover you cannot work together and the partnership falls apart, leaving your business in tatters. 

Your business partners may be the ones with whom you develop the idea, or you may seek them out to join up with you afterwards. 

Ask yourself a series of questions about the partners you may choose to join up with you:

What skills and experiences will they bring to our business partnership?

Your partner should bring skills and experiences that you don’t have. This means that they’ll be able to expand the capabilities of your business venture by offering strengths where you have weaknesses. If accounting isn’t your game, find someone who’s good with numbers and finances. 

Do they share my values and drive towards the kind of business I want to create?

You and your business partner should align on more than just the goal to make money together. How you want your business to present itself, what your plans for expansion are, what kind of clientele you want, and many more things are important shared goals for a business partnership. 

Am I taking a risk by letting them join up? 

Business partners, like anyone, bring their own share of baggage to each venture. This could be in the form of personal baggage, financial baggage, or related to their reputation as a business owner. While it’s honourable to provide someone a chance in business, just remember that your livelihood could be on the line. 

What does their credibility offer to our business?

Credibility is earned through other successful business ventures, employment record, public profile, among other things. What kind of credibility your business partner has will play an important role in the future of your business partnership. 

Are they ethical, respectful, and do they want the best for others?

Every business has an ethos. In today’s world, this is becoming more important as more businesses approach social and environmental issues with the intent to contribute something positive. 

Determine the type of partnership

Putting together a business partnership means choosing the right kind of formation. The different formation options offer different scenarios which may be better suited to your needs. The options for setting up a partnership are:

  • Limited Partnership (LP)
  • General Partnership
  • Limited Liability Partnership (LLP)

Let’s go through the major partnership types. At the end of this article, we’ll include the available business partnership types in Germany. 

Limited Partnership (LP)

An LLP is a partnership that’s made up of two or more partners. It is described as ‘limited’ because while the general partner oversees and runs the business, the limited partners are not involved in management. Instead, they are liable for the amount that they have invested in the business. 

General Partnership

In general partnerships, partnerships share all responsibilities equally: the managerial duties, profits, and debt liabilities. If there is a plan to divide up these responsibilities unequally, then this should be written out in the 

Limited Liability Partnership (LLP)

The antithesis of a General Partnership, in a Limited Liability Partnership, all partners in the enterprise have limited liability. They can also take part in managerial responsibilities. LLPs are common formations for law and accounting firms. 

Decide on a name for your partnership

How to set up a partnership and how to find a name for it

Maybe somebody in your partnership already has the perfect name, but if not, it’s time to do some company name brainstorming. Generating company name ideas is a multi-faceted process and should be approached from a few different angles. 

Choose a name that reflects your type of company

While a catchy, few-syllabled name is good for an app or trendy cafe, certain other businesses come with expectations. Law firms are often simply the names of the partners because clientele seeking legal assistance expect some degree of conventionality and professionalism from the firm they choose. Calling your law firm ‘Lawyer Land’ or something catchy like that might give off the wrong impression. 

On the other hand, if you are founding something less serious, something you hope people will use in everyday conversation, try to pick something with the following characteristics: 

  • Association with something positive for the customer (e.g. nature, pop culture, geography)
  • Alliterative sounds, repetitive phrasing, rhyming
  • Short in length

Get some outside feedback 

You and your partners may agree on the name you’ve chosen, but since you will be running a public company, it’s always important to seek outside feedback before going live. Input from friends or family can offer a perspective on your company, perhaps an unwanted association or slight alteration, that those of you involved in the company will be blind to. 

Set up a partnership agreement

Setting up a partnership agreement requires a few necessary steps to make sure you do things right. 

Let’s go through the key steps towards setting up your business partnership, which are:

  1. Register the partnership
  2. Comply with tay and legal requirements
  3. Open a business bank account
  4. Get the necessary insurance

1. Register the partnership

When you register your partnership, you will need to visit the website of the appropriate authority in your area. Here, you will need to submit the name of your business and participating partners. You will likely be required to sign forms sent through the mail, or it may be possible to do this online. 

2. Comply with tax and legal requirements

Research the tax and legal requirements specific to your region. Every company must submit their tax return regularly, and certain areas have specific requirements which will affect your business partnership. 

Contact your local tax office to discuss the particulars of your company’s situation, so you can be sure you’re doing the right thing. Check also the required dates of submission, some of which have changed due to the COVID-19 pandemic. 

3. Open a business bank account 

Opening a business banking account is not only a requirement for businesses, but it also provides an array of benefits. Specific benefits of having a business banking account for partnerships include: 

  • Company team spending cards with individual limits
  • Accounting and bookkeeping integration
  • Seamless transferral of data to your accountant

And more. 

Choose a business banking account that most suits your needs and you’ll simplify the financial responsibilities of both your and your business partners. 

Make the secure choice with a Penta Business Banking Account

4. Get the necessary insurance

Business partnerships require specific insurance. This is because if something happens to one of the partners in the business that leaves them unable to continue participating, it can be very costly for the remaining involved members. 

You may be required to compensate for the absentee partner’s stake in the partnership, which can require a costly capital sum. This may also happen at a crucial time in your business, such as near the beginning of formation when you are putting money into as much growth as possible, or during a slow season. 

Partnership insurance compensates for this unfortunate situation. By paying a monthly amount, you make sure that a lump sum can be released in the event of a partner leaving suddenly, which will cover all or part of the required compensation. 

Conclusion: how to set up a business partnership

Business partnerships are a great way to share the load of responsibilities of entrepreneurship, and expand the kind of reach and versatility your business can have. Setting one up takes planning and cooperation, but if you’re the type who works best with others, consider a business partnership for your success.

Stay secure with a Penta Business Banking Account

Your all-in-one business banking account to power up your business.

Frequently Asked Questions about business partnerships

A business partnership is a business involving two or more partners. They may share liability equally or unequally, depending on the conditions laid out at the beginning.

Limited Partnership (LP)

An LLP is a partnership that’s made up of two or more partners. It is described as ‘limited’ because while the general partner oversees and runs the business, the limited partners are not involved in management. Instead, they are liable for the amount that they have invested in the business.

General Partnership

In general partnerships, partnerships share all responsibilities equally: the managerial duties, profits, and debt liabilities. If there is a plan to divide up these responsibilities unequally, then this should be written out in the

Limited Liability Partnership (LLP)

The antithesis of a General Partnership, in a Limited Liability Partnership, all partners in the enterprise have limited liability. They can also take part in managerial responsibilities. LLPs are common formations for law and accounting firms.

A partnership may be better for you if you can find the right partners who share your vision and drive for success. When you bring on partners, you bring on new skills, talents, and experiences. But you also bring on new liabilities and fiscal responsibilities.

Small businesses benefit from partnerships because there is less at stake financially. Often, solo entrepreneurs underestimate the breadth of responsibility required to run a small business and how overwhelming it can be for one person. Splitting these with even just one more person can alleviate the stress and make the whole process a lot more palatable.

Payment depends on the formation of the partnership, on how much stock they have in the company, on what kind of conditions are set out in the contract at the beginning. This is why it is important to set up a partnership agreement at the formation stage.

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