If you want to initiate your business with one or more partners, it is evident to form a business partnership. This is a business structure that would enable you and at least one other person who will be your partner to both have business ownership.
It is essential to register your firm as the partnership firm registration is possible under section 58 of the Indian partnership act, 1932, with required documents and legal compliance. Although devising the partnership makes sense, it is not the only option available in the market. Before setting up a partnership, you should be aware of the business structure’s pros and cons. Now, let’s discuss the advantages and disadvantages of the partnership.
Advantages of the partnership.
– You will have to extra pair of hands
Generally, owners of the business take up the multiple roles in their hands and perform them. Most of the business owners are surrounded by ongoing work, late nights, and complex problems. If you have a business associate, you will have a person or multiple people who can assist you with all the business tasks as partners can split the tasks and responsibilities that would result in speedily completing tasks with better efficiency.
– You can be the beneficiary of additional knowledge and experience.
All the business partners, irrespective of their size, can bring their skills, knowledge and experience to that table that you might not have. Indeed, you might have knowledge about the services and products that your business offers, but you might not know how to run a business. You can bring skilled and experienced partners to the table to fill the void and make your business successful.
– Financial burden will be distributed equally.
Initiating a new business can be challenging as you will have to deal with costly overhead expenses of equipment, inventory, retail space and so forth with tight pockets. Partners can release your financial burden from your shoulders. Rather than paying for everything yourself, you can split the cost between your partners. Due to the partners’ financial contribution, the business would be able to do more things. On the other hand, you can expel the fear of a large amount of debt while initiating a business.
– Paperwork would be less.
Forming a partnership is not challenging as it looks. You are not obliged to submit any special paperwork with the central government. You will have only minimal local paperwork. All the partners involved in the business should have to sign a partnership agreement. This agreement would contain the details, duties, and responsibility of each partner, how decisions will be taken, how profit and loss would be distributed and so forth. Creating and signing the document is simpler than submitting the required paperwork for other business structures.
– Low amount of taxes to pay.
With the partnership, you are not obliged to pay any additional business entity taxes. To put it simply, you do not have to fill out and submit business tax forms. Instead, taxes pass through to the owners of the business. You would insert your share of profit and loss on your individual tax return. You will be liable to pay any other additional taxes as well, individually.
Disadvantages of the partnership.
– Decisions have to be made coherently; hence, you cannot make decisions on your own.
In the partnership form, you cannot act independently. You will have to work with your partners while making any decision or at least run all your partners’ business decisions. Suppose your partner operates independently and makes a rash decision, then all the partners would be responsible for the decision and its results; he/she solely cannot be held as accountable for this.
– Disagreements will be there.
It is evident that every time you work with people together, there is a chance of potential dispute or conflict. You and your associates will have disagreements. You might not feel good while working with them. If this occurs persistently, then you cannot dissolve the partnership easily. You will have to make a partnership exit strategy then you are required to redistribute profit and loss responsibility amongst the remaining partners. And you should have to change the business structure.
– You have to share the profit.
When you run the business on your own, you will be the sole beneficiary of the profit you make from the business. But when you are in the partnership, you will have to split the profit; depending on the number of partners you have, your share of profit might get small.
– You are not distinct from the business.
A partnership is not a distinct legal entity from you and your other associates. All the associates are financially and legally responsible for the business. If your business has to face a legal problem, you will have to face a legal battle. And if your business is not in a state to pay back the debts, then the debt collector can come after your own money as well.
– You are going to be taxed individually.
While being taxed individually is an advantage and disadvantage as well. Usually, business taxes have lower rates than individual tax rates. Because the taxes are forwarded to you and your associates, you might as a whole pay more than if you pay business taxes individually.
You would generally see the three types of partnership: limited partnership, general partnership, and limited liability partnership. Here, LLP is very predominant in the market currently as it offers limited liability to partners. The online LLP registration in India can be done under the LLP act, 2008. In contrast, each of them has its pros and cons. Before selecting the particular partnership type, let’s look at some of the business partnership’s general advantages and disadvantages.
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