Advantages and Disadvantages of Partnerships

Being a small business or rental property owner can be a time consuming expensive endeavor.  However, forming a partnership for these activities can help relieve some of the stress.  Even though the title of this article is about partnerships, this can apply to multiple entities, including general partnerships, limited partnerships, limited liability partnerships, and even Limited Liability Companies taxed as partnerships.

Having a partner, or partners, gives you access to additional funding and an extra set of hands to complete all the required tasks.  Instead of having to fund the entire investment yourself, a partner can share in the costs of the investment to help expedite the project or decrease the financial burden on each of you.  Time is a valuable thing and having that extra set of hands to get the tasks done should free up some more of your time.  Additionally, these other partners can bring their previous experiences and knowledge to the table to help further the current project.  Ideally, you would have a partner whose skills complement your own, so together the partnership is worth more than the sum of its parts.

While there are many advantages of having a partnership, its not all fun and roses.  Having a partner means you cannot make all the decisions on your own (unless you set your partnership up this way, and if so, good for you).  Most likely, your partner would want some input on the direction of the company, or how the rental property will be managed.  I can guarantee that having to work with someone else will cause disagreements to happen, no matter how in sync you and your partner are.  Hopefully, when setting up your partnership, you outlined how disputes would be handled, but a big disagreement could mean the end of the business or investment, which could be costly to shut down.

Remember the advantage of not having to fund the entire project or investment yourself?  Well there is a direct comparison disadvantage that you will have to split the profits with the partner.  If you have many partners, your share of the profits may not be very large.

Before starting a partnership of any type, make sure you and your partner are compatible since disagreements down the road could be a costly mistake for both of you.  If everything is discussed and documented up front, a partnership could be a great way to advance your financial aspirations in life.

Here at American Partners, we appreciate the advantages of partnerships and how they can help further your financial goals.  If you are part of a partnership for a rental property or small business, or anything else, please feel free to contact us at [email protected] to have us adjust your ownership percentage, regardless of the package to which you are subscribed.  Make sure to include the assets/businesses/etc., and your ownership percentage.