Business Partnership | Different Ways People Partner & Venture in Business

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  • Business Partnership | Different Ways People Partner & Venture in Business

    Business partnerships are a great way to start a business and learn with like-minded entrepreneurs like yourself the in's and out's of the business, creating a wonderful environment where all business partners benefit from each other's strengths and weaknesses. A business partnership is essentially a contract between two or more people, requiring each of them to share their assets and liabilities.

    Informing a business partnership, you need to decide on what your relationship with fellow partners shall be like: Will you act as friends or mere business associates? No matter what kind of 'partnership' it will become, keep in mind that an equal sharing of responsibilities and benefits is crucial for its success.
    Partners have the freedom to make business decisions without consulting each other. Yet, there are certain situations in which they need to make all their decisions unanimously.

    A person who enters into a partnership arrangement is called a partner. A partner's share may be equal or unequal, depending on how much money he has invested and how much work he has put into running the company. For example, two people may start up a restaurant business as partners. Still, one might invest more capital while the other shoulders most of the responsibility for managing the venture. Common shareholders hold the same ownership stakes in the business. A shareholder is always a passive investor who can't take any decision of the company.
    If you are thinking about forming a partnership business, then there are certain things to keep in mind:
    • The legal and financial issues of starting and running your business will be more complicated than if you were working alone;
    • Your liability may not be limited even if all partners agree that it should be; There will always be disagreements between partners over services rendered, compensation, etc.
    • Each partner has equal right to withdraw capital from the business at any time, but a withdrawal by one partner automatically causes a reduction in each other partner's share;
    • If there are disputes among partners, then laws governing partnerships may not be able to resolve them; and
    • A business partnership may hurt your personal life.
    • It would be best to understand the basic characteristics of attorneys, accountants, and other experts who are part of every business structure: they can help you avoid risks and ensure legal compliance, but they can't run your business for you.

    Nevertheless, many successful companies have taken advantage of various partnership strategies - including traditional partnerships and online business strategies.

    Traditional business partnerships
    Many businesses with traditional forms of business partnerships include those with a contractual or joint venture relationship, affiliates, subcontractors, and franchisees. They are usually more suitable for larger firms because it is usually more costly to run these kinds of relationships than other types, such as setting them up and maintaining them. These relationships help cut costs by sharing employees and resources across two partners, creating economies of scale (and sometimes increasing specialization).

    When this type of partnership works well between two firms, they will often coordinate activities smoothly, reduce redundancy and manage highly complex operations/supply chains effectively. However, when things go wrong within partnerships – usually the case due to dissimilarities between the partners - it is usually very difficult to resolve the problems and enforce contracts. Some of the traditional business partnerships include;

    1) Joint Venture (JV)

    This is the same as starting up a company with other people. Still, instead of acquiring a legal existence by registering at appropriate authorities like the registry office or chamber of commerce, all persons involved work together under one roof without any legal formalities. It's easy and quick to form a JV. All that needs to be done is for all parties involved to conduct business, make decisions and accept the consequences of doing so as if they were a registered entity. A key difference between a Joint Venture and a partnership is that partners can walk away from the partnership at any time without incurring any debt, whereas, in the case of JV, one has to pay off the capital invested even if they walk away before its closure.

    2) Limited Partnership (LP)

    This kind has two types: General Limited Partnership (GLP) and Limited Liability Partnership (LLP). The GLP's general partner assumes unlimited liability for business debts; however, with LLP, his/her liability is limited, which means that professional help like that of accountants, attorneys, etc., will not be needed as in the case of GLP. The LLP is also tax efficient because the income and losses are reported at lower individual tax rates.
    Limited Partnership Agreement (LPA) defines all terms and conditions which govern a Limited partnership between its partners; this includes management structure, capital investments, share distribution ratios, etc. It is drafted by an attorney based on your business agreements to protect you from any legal complications that may arise later on. Each partner must sign the LPA for it to become valid and binding.

    3) Joint Stock Company (JSC).

    As the name suggests, it represents ownership interests via shares in place of money or assets. Shareholders elect the Board of Directors who manage the corporation and appoint other officers. The shareholders can also make changes to the company's articles of incorporation as well as its bylaws.

    4) General Partnership (GP)

    For instance, the partnership may be entered into between two people or more than two, for instance, a married couple. A GP is an unincorporated business entity, so it doesn't have separate legal existence apart from that of its partners, meaning that partners are personally liable for business debts/liabilities incurred by them, in case if one partner gets hit with some financial issues he has to declare bankruptcy usually. Entering into a partnership with your spouse can put you at risk because divorce laws don't always give the same protections to both parties involved. For more information about marriage and divorce laws in your state, contact the Family Law Center.

    5) Limited Partnership (LP)

    It is similar to a GP except for one very crucial difference: no more than 20% of its total interest can be held by any single partner, which means that an LP is not necessarily limited to two partners; it may have more. However, if only two partners are involved, they are called general partners, whereas everyone else is known as limited partners. Like most other business entities, a limited partnership has an existence independent from that of its owners, so each party involved doesn't bear unlimited liability - only general partner(s). The LPs aren't subject to double taxation because income and expenses associated with them are reported at lower tax than that of individual income. Though it has limited liability, a partner still has to pay off the money invested even if they leave before its completion.

    6) Limited Liability Partnership (LLP)

    It is similar to LP except for three main differences: note tax benefits. Suppose an LLP member gets hit with financial issues or needs the assistance of an attorney. In that case, he can either sell his interest or get it bought out by another party involved without affecting other members' ownership interests. The last difference between these two entities is that LLCs are not subject to double taxation like LPs because they report taxable income at higher individual rates instead of lower corporate rates.

    Online business partnerships.

    There are two main types of online business strategies that entrepreneurs/companies use to partner with each other for their online businesses without having a physical presence in a certain geographical area or country. These are affiliate marketing (in which one party promotes another companies products using textual, image-based, video, or other forms of promotional media) and joint ventures (where companies combine resources, share costs, and risk to create something they could not have done individually).
    Competitors who join forces will benefit from setting up cooperative agreements by sharing information(know-how), offering complimentary services (marketing, distribution, etc.), selling their products jointly, or pooling their resources to create a unique service.

    There are many forms of online business partnerships, including:

    1) Affiliate marketing.

    This is when a website owner allows another company to use their site traffic to promote that company's products/services. They do this for money, and the other firm gets valuable exposure (their product is promoted on someone else's website).

    2) Joint ventures.

    This is when two firms join forces to create a unique service or product that they could not have done individually.

    3) Pooling resources.

    This is when two firms join forces to reduce costs by sharing employees and resources between themselves. In a world where businesses seem all too focused on staying competitive at the expense of collaborating with others, this type of cooperation between vendors has great potential to increase sales, cut costs and introduce new features the market wants.

    4) Sponsorship deals.

    In this arrangement, one company pays another (the "endorser") to have its name prominently displayed at a specific event or venue during a well-known annual event or occasion (e.g., the Super Bowl, a NASCAR race). This strategy is beneficial to both parties: The sponsor receives targeted exposure and may instantly boost its reputation amongst potential consumers; meanwhile, the endorsee benefits from an existing brand association with the event itself, leading to increased sales and more loyal customer relationships down the road. In fact, according to research conducted by Nielsen Sports Group, 72% of fans are more likely to purchase products endorsed by professional athletes if they are satisfied with those players' performance on the field.

    5) Content review swaps.

    Online sellers can gain traffic for their business website through content review exchanges -- an agreement between two sites that one will post a product review in exchange for receiving a product to review. Each party involved in the partnership can increase its traffic through this deal, and it's important to remember that each site must provide an honest review of the other site's products. This might involve creating their content or opting to simply post a link back to the original review on another website (e.g., Amazon).

    6) Co-op advertising campaigns.

    Co-op advertising is an informal term for when two online business owners team up because they have complementary goals or offer similar products/services. According to the Small Business Administration, some co-op advertising scenarios include:
    Many business owners who participate in online business partnerships use an independent third-party website, such as Breezi .com, to host their content. The site offers useful features such as a built-in payment processing system, automated tax calculations, fraud protection, and more -- features that can help sellers manage their day-to-day business activities with ease from a single digital location.

    7) Co-ownership arrangements.

    These are other ways that businesses can team up. In these situations, two or more people come together and agree to pursue similar goals; this means they must trust one another with their business decisions and share any profits/losses equally. Similarly, co-ownership partnerships can be created online where business owners come together to build their website (or individual section of a larger website) and agree to promote one another's products/services to increase revenue for everyone involved.

    8) A win-win situation.

    This is another kind of online business strategy where firms share the cost and/or staff in order to boost productivity as a unit. It can be a traditional partnership, or it could even be a joint venture where two separate companies divide up work accordingly.

    9) An economic model.

    This is an online business strategy that involves pooling resources together so that everyone involved benefits financially. It can work as a joint venture or affiliate marketing plan - like if there were two companies that combined their resources together to sell different products at the same time in order to maximize profits on both ends.

    10) Cooperation.

    This is an online business strategy based on sharing resources and knowledge between multiple different businesses in order to create something new that cannot otherwise exist alone (like if we combined our travel company and Forex training course with your flight comparison service).
    You may be wondering, are business partnerships always a good idea? The answer is yes and no. If you have an established company with plenty of money to invest in the partnership, it can be beneficial for both parties involved. However, if you're just starting up your own small business or don't have much capital to offer as equity, then partnering with another company isn't such a great idea because they won't want what little you do have to offer them in return. It is always better to join your strengths and skills in your professional endeavor with other business owners, so work on your skills and strengths and you should be able to provide immense value to all parties and business owners as a whole.
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