As in life, partnerships can bring great benefits to the business. When like-minded people share common objectives, their diverse experience and knowledge can increase their chances of success. Shaking hands with someone definitely makes sense.
Partnerships are critical to the growth of any business venture. Traders and merchants have used strategic partnership principles to conduct business from day one. This trend is still applicable to date. Partnerships come in many forms, from collaboration between business owners to investments in projects, to the exchange of ideas and technical knowledge between companies. Whatever your business does, it’s important to find the right partnership agreement that is advantageous to both parties.
Partnership business is one of the most regular forms of business in Canada, with hundreds of partnerships currently existing. The business partnership model allows you to start a business with others without the form of a limited liability company.
What’s Business Partnership in Canada?
Before moving on to the benefits of partnerships, you need to know what is considered a partnership in Canada. Basically, a partnership is an agreement between two parties to jointly operate and manage a business. These parties are generally individuals, but may also include legal entities such as corporations.
In its broadest sense, the term “partnership” refers to any business conducted jointly by several parties. Partnership rules may vary by state and the particular type of partnership, but partnerships have three main business structures:
- General Partnership: The most common way to form partnerships is through regular partnerships. It is when two or more parties come together to run and operate a business, with all parties sharing the profits and liabilities equally. Every individual partnership is personally liable for its business-related liabilities, torts and contractual obligations. This is equivalent to a sole proprietorship.
- Limited Partnership: A limited partnership agreement includes one or more partners with unrestrained liability for which the partners are personally liable for the financial and legal obligations of their business. Also, one or more limited partners whose personal liability is limited by contribution. Most often you get to a limited partnership where a company acts as a general partner and two or more individuals act as a limited partner. These limited partners, also known as silent partners, donate money and sometimes provide advice to businesses. However, contributions must be kept limited or you risk losing your limited liability status.
- Limited Liability Partnership: Partnerships are most common in high-risk occupations such as law, accounting, or medicine. In fact, in some states, these partnership statuses are limited to these types of jobs. This partnership agreement gives each party limited liability. If a client makes a claim, only the business partners working with that specific client (or a particular project) are liable. This works because the profession typically sees a team of lawyers working on a case or a physician working on a single case with minimal duplication of partners acting as practitioners.
Top Advantages of a Partnership Business
Perhaps you are bored of being the sole owner and the only individual with a stake in your business. You may want to attract capital inflows from partners or investors with additional skills to survive or thrive. No matter the reason, business partnerships offer many benefits to those who choose to take advantage of them.
- Less Formal with Fewer Legal Obligations
One of the major benefits of a business partnership is the dearth of formalities when compared to managing a limited company. The accounting process is usually easier for partnerships when compared to limited companies. Affiliates are not required to file corporate tax returns but must keep records of expenses and income.
Unlike a limited liability company, there is no need to fill out an attestation application, and a partnership does not require many other possible company forms that a limited liability company may need to submit. You also need to keep fewer records. In particular, business partnerships do not have to maintain articles of an association like a limited liability company.
- Simple Operating Structure
Unlike corporations, partnerships are very simple to set up and manage. There is no need to submit a form or fill out an official agreement (although it is recommended to fill out a partnership agreement in case of any future discrepancies). What you probably need most is to register your business name and submit a certificate of partnership to a government agency to obtain a business license.
As a result, when forming a partnership, you avoid the company’s annual incorporation costs, which can sometimes be very expensive.
- Access to Knowledge, Experience, Skills and Contacts
Each partner brings with them their knowledge, experience, skills, and contacts into the business, providing a better possibility of success compared to partners trading alone.
Partners can share challenges that each specializes in what they do best and enjoy the most. So, if one partner has financial experience, they can focus on maintaining the company’s books, while the other can assume responsibility for the business side because they have previously worked extensively in the sales field. Unlike private traders, you have to do everything by yourself (or have someone you hire to do some for you).
- Sharing the Burden
Compared to working alone as a private trader, operating in a business partnership can benefit from mutual support and companionship. Starting and running a business alone can be tricky and challenging, especially if you’ve never done it previously. When it comes to a business partnership, it brings you together.
- More Partners, More Capital
The more partners you have, the more money you can invest in your business from common resources, which can stimulate growth.
In addition to putting extra capital into your business, a partner can help you keep more money in your pocket. Every partner shares the financial load of the business. This means that you are not solely responsible for disbursing and paying capital expenses. Not exactly business savings, but having a business partner can mean more money in your bank account.
A business partnership is like marriage. In a perfect world, you will find a partner who shares your love for business, has the right personality and is ready to discuss your questions and challenges along the way. Business is constructed through relationships and relationships are constructed through people.