The Advantages of a Partnership Business Start-ups Should Consider
One of the biggest considerations when starting up in business is what the best business structure will be. The common options are sole trader, limited company, partnership and limited liability partnership. Sole trader is a popular solution due to the simplicity and flexibility: this structure offers low set-up costs and accountancy fees, and reduced duties. However, being solely responsible for the success or failure of a company can be a daunting prospect, so perhaps the advantages of a partnership could be the winning formula?
The power of two (or more) – the great thing about a partnership is that it negates the loneliness that often blights the sole trader, and facilitates the pooling of talent for joint benefit. The old adage ‘two head are better than one’ can certainly be true in the case of running a business, and is ideal where there are two or more people with synergistic or complementary skills that can provide a great offering for potential customers. The best ideas are cultivated through brainstorming and bouncing ideas off other people – and some people just aren’t wired to work alone. There is also reduced regulation around this structure – great for those looking to avoid unnecessary admin!
Low set-up costs and simple accounting duties – as in sole trader status, there are no fees in set-up as there would be in establishing a limited company, for instance. There are few formalities to trading and tax duties are straightforward: just keeping track and recording expenses and income in order to establish the profit and therefore the tax that is owed, is all that is required. All profits generated are automatically owned by the partners, in whatever agreed percentage split that has been agreed initially. It is wise in this instance to have an agreement drawn up with the pre-determined percentages and rules of working together – as the partnership is jointly responsible for debts incurred by the partnership.
Increased capital and borrowing capability – one of the great advantages of a partnership is that, with two or more people involved, there is a bigger borrowing opportunity for set-up and growth. This can be key to getting the business off to a successful start or capitalising on a growth opportunity at the right time. Access to funding is always the main challenge when looking to start or take a business to the next level, so the borrowing power of a partnership is a major bonus here.
Maintaining privacy – unlike in the case of a limited company where company accounts are available to look up, the business affairs of a partnership are just like in sole trader status – they remain private. This can be one of the advantages of a partnership if those involved are keen to keep their financial status to themselves.
When looking to start a business, it is always advisable to seek the help of an accountancy or business adviser firm that can highlight the pros and cons of each business structure and advise on the best one for the venture. In many cases, a limited company may be more beneficial. Getting the structure right at the outset is crucial for the best start business and putting it on the road to success.