Improving the management of complex business partnerships

Partnerships never go out of style. Companies regularly seek partners with complementary capabilities to gain access to new markets and channels, share intellectual property or infrastructure, or reduce risk. The more complex the business environment becomes—for instance, as new technologies emerge or as innovation cycles get faster—the more such relationships make sense. And the better companies get at managing individual relationships, the more likely it is that they will become “partners of choice” and able to build entire portfolios of practical and value-creating partnerships.

Of course, the perennial problems associated with managing business partnerships don’t go away either—particularly as companies increasingly strike relationships with partners in different sectors and geographies. The last time we polled executives on their perceived risks for strategic partnerships, 1 Observations collected in McKinsey’s 2015 survey of more than 1,250 executives. Sixty-eight percent said they expect their organizations to increase the number of joint ventures or large partnerships they participate in over the next five years. A separate, follow-up survey in 2018 showed that 73 percent of participants expect their companies to increase the number of large partnerships they engage in. the main ones were: partners’ disagreements on the central objectives for the relationship, poor communication practices among partners, poor governance processes, and, when market or other circumstances change, partners’ inability to identify and quickly make the changes needed for the relationship to succeed (exhibit).

In our work helping executive teams set up and navigate complex partnerships, we have witnessed firsthand how these problems crop up, and we have observed the different ways companies deal with them . The reality is: successful partnerships don’t just happen. Strong partners set a clear foundation for business relationships and nurture them. They emphasize accountability within and across partner companies, and they use metrics to gauge success. And they are willing to change things up if needed. Focusing on these priorities can help partnerships thrive and create more value than they would otherwise.

Establish a clear foundation

It seems obvious that partner companies would strive to find common ground from the start—particularly in the case of large joint ventures in which each side has a big financial stake, or in partnerships in which there are extreme differences in cultures, communications, and expectations.

Yet, in a rush to complete the deal, discussions about common goals often get overlooked. This is especially true in strategic alliances within an industry, where everyone assumes that because they are operating in the same sector they are already on the same page. By skipping this step, companies increase the stress and tension placed on the partnership and reduce the odds of its success. For instance, the day-to-day operators end up receiving confusing guidance or conflicting priorities from partner organizations.

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How can the partners combat it? The individuals expected to lead day-to-day operations of the partnership, whether business-unit executives or alliance managers, should be part of negotiations at the outset. This happens less often than you think because business-development teams and lawyers are typically charged with hammering out the terms of the deal—the objectives, scope, and governance structure—while the operations piece often gets sorted out after the fact.

Transparency during negotiations is the only way to ensure that everyone understands the partners’ goals (whether their primary focus is on improving operations or launching a new strategy) and that everyone is using the same measures of success. Even more important, transparency encourages trust and collaboration among partners, which is especially important when you consider the number of executives across the organizations who will likely rotate in and out of leadership roles during the life of the relationship.

Inevitably, points of tension will emerge. For instance, companies often disagree on financial flows or decision rights. But we have seen partners articulate such differences during the negotiation period, find agreement on priorities, and reset timelines and milestones. They defused much of the tension up front, so when new wrinkles—such as market shifts and changes in partners’ strategies—did emerge, the companies were more easily able to avoid costly setbacks and delays in the business activities they were pursuing together.

Nurture the relationship

Even business relationships that start off solidly can erode, given individual biases and common communication and collaboration issues. There are several measures partners can take to avoid these traps.

Connect socially

If executives in the partner organizations actively look for opportunities to understand one another, good collaboration and communication at the operations level are likely to follow. Given time and geographic constraints, it can be hard for them to do so, but as one energy-sector executive who has negotiated and managed dozens of partnerships noted, “It’s important to spend as much time as you can on their turf.” He says about 30 to 40 percent of partnership meetings are about business; the rest of the time is spent building friendships and trust.

Keep everyone in the loop

Skipping the step of keeping everyone informed can create unnecessary confusion and rework for partner organizations. That is what happened in the case of an industrial joint venture: the first partner in the joint venture included a key business-unit leader in all venture-related discussions. The second partner apprised a key business-unit leader about major developments, but this individual did not actually join the discussions until late in the joint-venture negotiation. At that point, as he learned more about the agreement, he flagged several issues, including inconsistencies in the partners’ access to vendors and related data. He immediately recognized these issues because they directly affected operations in his division. Because he hadn’t been included in early discussions, however, the partners wasted time designing an operating model for the joint venture that would likely not work for one of them. They had to go back to the drawing board.

Recognize each other’s capabilities, cultures, and motivations

Partners come together to take advantage of complementary geographies, corresponding sales and marketing strengths, or compatibilities in other functional areas. But it is important to understand which partner is best at what . This process must start before the deal is completed—but cannot stop at signing. In the case of one consumer-goods joint venture, for instance, the two partner organizations felt confident in their plan to combine the manufacturing strength of one company with the sales and marketing strengths of the other. During their discussions on how to handle financial reporting, however, it became clear that the partner with sales and marketing strengths had a spike in forecasting, budgeting, and reporting expertise. The product team for the first partner had originally expected to manage these finance tasks, but both partner teams ultimately agreed that the second partner should take them on. In this way, they were able to enhance the joint venture’s ongoing operations and ensure its viability.

Equally important is understanding each partner’s motivation behind the deal. This is a common point of focus during early negotiations; it should continue to be discussed as part of day-to-day operations—particularly if there are secondary motivators, such as access to suppliers or transfer of capabilities, that are important to each partner. Within one energy-sector partnership, for instance, the nonoperating partner was keen to understand how its local workforce would receive training over the course of the partnership. This company wanted to enhance the skills of the local workforce to create more opportunities for long-term employment in the region. The operating partner incorporated training and skill-evaluation metrics in the venture’s quarterly updates, thus improving the companies’ communication on the topic and explicitly acknowledging the importance of this point to its partner.

Invest in tools, processes, and personnel

Bringing different business cultures together can be challenging, given partners’ varying communication styles and expectations. The good news is that there are a range of tools—among them, financial models, key performance indicators, playbooks, and portfolio reviews—companies can use to help bridge any gaps. And not all these interventions are technology dependent. Some companies simply standardize the format of partnership meetings and agendas so that teams know what to expect. Others follow stringent reporting requirements.

Another good move is to convene an alliance-management team. This group tracks and reviews the partnership’s progress against defined metrics and helps to spot potential areas of concern—ideally with enough time to change course. Such teams take different forms. One pharmaceutical company with dozens of commercial and research partnerships has a nine-member alliance-management team charged mostly with monitoring and flagging potential issues for business-unit leaders, so it consists of primarily junior members and one senior leader who interacts directly with partners. An energy company with four large-scale joint ventures has taken a different approach: its alliance-management team comprises four people, but each is an experienced business leader who can serve as a resource for the respective joint-venture-leadership teams.

Sometimes partnerships need a structural shake-up—and not just as an act of last resort.

How companies structure these teams depends on concrete factors—the number and complexity of the partnerships, for instance—as well as intangibles like executive support for alliances and joint ventures and the experiences and capabilities of the individuals who would make up the alliance-management team.

Emphasize accountability and metrics

Good governance is the linchpin for successful partnerships; as such, it is critical that senior executives from the partner organizations remain involved in oversight of the partnership. At the very least, each partner should assign a senior line executive from the company to be “deal sponsor”—someone who can keep operations leaders and alliance managers focused on priorities, advocate for resources when needed, and generally create an environment in which everyone can act with more confidence and coordination.

Additionally, the partners must define “success” for their operations teams: What metrics will they use to determine whether they have hit their goals, and how will they track them? Some companies have built responsibility matrices; others have used detailed process maps or project stage gates to clarify expectations, timelines, and critical performance measures. When partnerships are initially formed, it is usually the business-development teams that are responsible for building the case for the deal and identifying the value that may be created for both sides. As the partnership evolves, the operations teams must take over this task, but they will need ongoing guidance from senior leaders in the partner organizations.

Build a dynamic partnership

Sometimes partnerships need a structural shake-up—and not just as an act of last resort. For instance, it might be less critical to revisit the structure of a partnership in which both sides are focused on joint commercialization of complementary products than it would be for a partnership focused on the joint development of a set of new technologies. But there are some basic rules of thumb for considering changes in partnership structure.

Partner organizations must acknowledge that the scope of the relationship is likely to shift over time. This will be the case whether the partners are in a single- or multiasset venture, expect that services will be shared, anticipate expansion, or have any geographic, regulatory, or structural complexities. Accepting the inevitable will encourage partners to plan more carefully at the outset. For example, during negotiations, the partners in a pharmaceutical partnership determined that they had different views on future demand for drugs in development. This wasn’t a deal breaker, however. Instead, the partners designated a formula by which financial flows would be evaluated at specific intervals to address any changes in expected performance. This allowed the partners to adjust the partnership based on changes in market demand or the emergence of new products. All changes could be incorporated fairly into the financial splits of the partnership.

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Avoiding blind spots in your next joint venture

Partners should also consider the potential for restructuring during the negotiation process—ideally framing the potential endgame for the relationship. What market shifts might occur, how might that affect both sides’ interests and incentives, and what mechanisms would allow for orderly restructuring? When one oil and gas joint venture began struggling, the joint-venture leader realized he was being pulled in opposing directions by the two partner companies because of the companies’ conflicting incentives. “It made the alliance completely unstable,” he told us. He brought the partners back to the negotiation table to determine how to reconcile these conflicting incentives, restructure their agreement, and continue the relationship, thus avoiding deep resentment and frustration on both sides of the deal.

Such dialogues about the partnership’s future, while potentially stressful, should be conducted regularly—at least annually.

The implementation of these four principles requires some forethought and care. Every relationship comes with its own idiosyncrasies, after all, depending on industry, geography, previous experience, and strategy. Managing relationships outside of developed markets, for instance, can present additional challenges involving local cultures, integration norms, and regulatory complexities. Even in these emerging-market deals, however, the principles can serve as effective prerequisites for initiating discussions about how to change long-standing practices and mind-sets.

An emphasis on clarity, proactive management, accountability, and agility can not only extend the life span of a partnership or joint venture but also help companies build the capability to establish more of them—and, in the process, create outsize value and productivity in their organizations.

Ruth De Backer is a partner in McKinsey’s New York office, where Eileen Kelly Rinaudo is a senior expert.

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Business Partnership: Simple to Start but Sometimes Risky

Andrew L. Wang

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A business partnership is the simplest way to structure an entity that has more than one owner. If you're starting an ice cream truck business with a friend and are each putting in half of the startup's funds, that's a partnership.

Sounds simple, right? Not so fast. Every business, at some point in its life, will have outsiders demanding money from it, perhaps from a contractual obligation or a lawsuit. The kind of partnership you set up — if a partnership is the business structure you want, and it may not be — will determine if and to what extent your personal assets are protected from creditors.

The choice you and your co-owners make could be critical to the health of both your business and your personal finances.

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What is a business partnership?

A partnership is an unincorporated business owned and run by two or more people known as partners. Every partnership, in the eyes of the IRS, is a pass-through entity, which means the business itself is not taxed on its profits. Rather, all profits “pass through” to the owners, who file them on their own tax returns.

Types of business partnerships

Different types of partnerships provide varying levels of personal liability protection for partners.

A general partnership is the simplest. It has only general partners, who share equally in the ownership and management duties of the business. A GP is easy to set up, but it’s risky because you and the business are one and the same. You’re each jointly and severally liable for what’s owed, meaning creditors can come after any partner individually for the entire amount.

A limited partnership has general partners and limited partners, who own stakes but aren’t involved in the day-to-day grind. An LP protects limited partners’ personal assets up to the amount they invested in the business. General partners, meanwhile, can be held liable in the same way as they are in a GP.

A limited liability partnership is yet another variation on the model in which each partner’s personal assets are protected against the debts of the business, but partners can still be held personally liable for their individual professional actions. LLPs are used by licensed professionals such as lawyers, doctors and accountants. In fact, California and New York require that partners in an LLP be licensed in the state to provide a professional service.

A limited liability limited partnership is available in at least 23 states and is a variation on an LP that extends protection of personal assets to general partners, in addition to limited partners.

Business partnership: The pros

Here are some advantages to structuring as a partnership.

Easy and inexpensive to form

You don’t have to file paperwork with your state to start a general partnership; it’s automatically in place as soon as you and your partner go into business. For the other kinds of partnerships, states generally require partners to submit forms and pay a fee upon formation, then submit additional paperwork and fees annually.

Federal tax simplicity

Partnerships must file an annual information return with the IRS to report their income, but the income documented in the return is not taxed. Because a partnership is a pass-through entity, profits go directly to the partners and are included on their individual income tax returns. If the business is in an early stage and operating in the red, you can write off those losses on your personal return. If you’re in the black, the profits add to your individual tax bill.

Business partnership: The cons

Personal liability risk.

For GPs and LPs, you and your general partners open your personal assets up to significant risks. Creditors can pursue any partner individually if you have unpaid debt.

Shared ownership can get complicated

Once you form the business with other partners, you’re bonded to those people until that relationship ends. While different kinds of partnerships specify different roles between general and limited partners in terms of operational control, every partnership involves some degree of collective decision making, which can become difficult if partners disagree.

“Having a business partner is very much like a marriage,” said Elliot Richardson, CEO and founder of the Chicago-based Small Business Advocacy Council. “Just like a marriage, that can end well or that can end in a messy way.”

Experts recommend creating a partnership agreement that outlines how to handle responsibilities and conflicts within the business.

How to get started with a business partnership

Name your business: The default legal name of your partnership is the combination of the last names of its partners. If you would like to operate under a different name, it’s best to register a DBA , or “doing business as,” name with your county or state. These are also known as fictitious names, assumed names or trade names.

Get an employer identification number: The IRS requires any business operating as a partnership to have an EIN , a nine-digit number assigned to a business for tax purposes. You can apply online for an EIN.

Get proper business licenses and permits: States regulate the conduct of many types of businesses, so you'll need to determine which licenses, if any, your business needs to operate legally. Each state has an agency or office that handles professional licensing.

File appropriate formation paperwork with your state: This step is generally required for partnership types other than GPs. In Illinois, for example, LPs must file a certificate of limited partnership to do business.

Create a written partnership agreement: You’re not legally required to draft a partnership agreement , but it’s a good idea to have one. Doing so can help you and your partners avoid potential issues or disagreements down the line. It should outline how you and your partners will share responsibilities, split profits and losses, resolve disagreements, change ownership and dissolve the partnership.

Comply with publication requirements: Many states require some types of partnerships to publish their formation in newspapers. In Arizona, partnerships with “liability” in the name — LLPs and LLLPs — must publish in “a newspaper of general circulation” for three consecutive publications within 60 days of filing.

On a similar note...

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How to Start a Partnership in 7 Easy Steps

  • What a Partnership Means

Before You Go Into a Partnership

  • Make Decisions About Partners
  • Step 2: Decide on Partnership Type
  • Step 3: Decide on Partnership Name
  • Step 4: Register with Your State
  • Step 5: Get an Employer ID Number
  • Step 6: Create a Partnership Agreement
  • Step 7: Other Licenses, Permits
  • Getting Help from an Attorney

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You have been working with a business partner or partners for a while and you have decided to start a partnership. Great! 

Any business with several owners is going to be more complicated than a one-person business, but by following these seven steps you can make the process quicker and easier for you and your partner or partners. 

You can also use these steps to  start a limited liability company (LLC)  with several owners.

What a Partnership Means 

A partnership is a business organization with two or more persons as owners. Partnerships are governed by state laws, and a new partnership is registered with the state where it will be doing business.

Each partner shares in the organization's profits (and losses) and may share in the business operations decisions.  

For tax purposes, the partners are taxed, not the business itself. That is, the partners pay their share of the taxes based on their share of the partnership, through their personal tax returns  .  

Before you decide on who will join you in a partnership, you should check out these potential partners. Even if you have known someone from kindergarten, it's a good idea to make sure they are good partner material. That means, for each potential partner:

Doing a credit check on each partner. Use one or more of the credit agencies (Experian, Equifax, or TransUnion) to run a credit check.

Check the person's online presence. What social media does this person use? What types of activities or photos do they post? Is there something you wouldn't want clients or customers to see?

Do a personality test on each partner. A personality test like the Meyers-Briggs Type Indicator can help you look at partners and potential issues with interactions.

Step One: Make Decisions About Partners

You may be starting your partnership with one or more other owners. There are several decisions you will need to make about the roles, responsibilities, and payments regarding these members. 

Partner Contributions

How much does it cost to join this partnership? Usually, when a partnership is formed or a new partner joins, that person contributes a specific amount of money toward the partnership. You will need to decide how much each initial partner must contribute, and how much new partners in the future will contribute.   

Partner Types

What types of partners do you want in your partnership? Are all partners the same, or do some have more responsibilities for day-to-day activities than others? A partnership can have several types of partners:

  • General partners, who do the work and make decisions and have limited liability for debts and obligations of the partnership,  
  • Limited partners, who contribute but who don't make day-to-day decisions.   

You may also want to have some partners put in an equity (ownership) share and other partners may be salaried (paid as an employee) because they are performing management duties. These two types of partners are called equity partners and salaried partners.   

Partner Shares

What part of the profits does each partner get? Profits of the partnership are divided between partners according to their contributions, seniority, type, or a combination of the above. Take 100 percent and divide it between all partners. The amount due to each partner is called a distributive share .

Of course, partners will share the losses of the partnership in the same percentage. This distribution is only for taxes; the amount each partner takes out of the partnership from this percentage is discretionary.   

Step Two: Decide on Partnership Type

Based on the decisions you made in Step One, you should select a partnership type. There are several types to choose from. 

  • A General partnership has one type of partner, and all participate in the day-to-day decisions and the way their partnership share works are the same. 
  • A Limited partnership has both general partners and limited partners. 
  • A Limited Liability Partnership allows all partners to be shielded from liability for normal partnership activities.   

There are several variations of partnership types that may be available in your state. At this point, you should check with your state's business division to see what types of partnerships are available. 

Step Three: Decide on a Partnership Name

The type of partnership you have will determine the name of your partnership . For example, if you are starting a limited liability partnership, you would want this designation in your name. Some states have requirements for the name of different types of businesses, so this is the time to do research before you select that name. 

A business name is a key piece of information for your business and it's difficult — and costly — to change, so make sure you are firm about your business name before you go on to Step Four. If you aren't going on to Step Four right away, you can just register your partnership name with your state. if you are registering soon, you don't need to register the business name separately. 

Step Four: Register Your Partnership With Your State

When you have all the information you need for your partnership, go to your state's Secretary of State website and look for the business or corporations section. Here's where you register your business as a partnership. Most states will allow you to complete this registration online.   

If your partnership will be doing business in more than one state, you will need to complete this registration process with each state. The main state is done first as a "domestic" partnership, then register in other states as a "foreign" partnership. 

Step Five: Get an Employer ID Number

You can get an employer ID number (EIN) from the IRS after you have the business name and type and location. Almost all businesses need an EIN, even if they don't have employees. The process of getting an EIN is simple, and you can apply for an EIN online or by phone and get the number immediately  

Beware of fake Employer ID Number application websites. They walk you through the process of getting an EIN, then charge you to file. The IRS NEVER charges for these applications!

Step Six: Create a Partnership Agreement

Don't skip this important step in starting your partnership. A partnership agreement sets out in writing all the processes and decisions that the partners have agreed to. It answers all the "what if" questions that could come up in the life of a partnership.   

See this article on What to Include in a Partnership Agreement, to be sure you don't miss anything.

Step Seven: Get Other Registrations, Licenses, and Permits

Here's a quick list of some of the other legal and regulatory tasks you'll need to do as you start your partnership: 

  • Register with your state taxing authority for sales taxes  if you are selling taxable products or services.
  • Register to pay federal taxes with the EFTPS payment system . This registration applies to the paying of employment taxes if you have employees. 
  • You will need to file a fictitious name (sometimes called a DBA for "doing business as") registration with your city or county. 
  • Finally, depending on what type of partnership you have, you will need to register with your locality to get business licenses and permits , depending on your business activities.

Getting Help From an Attorney in Starting a Partnership

You may not need an attorney to do the registrations with your state and get the EIN. But, having an attorney help you with the partnership agreement is a definite yes. You may be able to do the first draft and have an attorney look it over. An attorney will help you make sure the agreement complies with your state's laws and will prevent mistakes and missed sections that come back to you later as issues. 

Legal Information Institute. " Partnership. " Accessed Dec. 27, 2019.

IRS. "Partnerships ." Accessed Dec. 27, 2019.

Legal Information Institute. " Contribution ," Accessed December 27, 2019. 

Legal Information Institute. "General Partner ." Accessed Dec. 27, 2019.

Legal Information Institute. " Limited partnership. " Accessed Dec. 27, 2019.

IRS. " Publication 541. Partnerships. " Partnership Distributions. Page 4. Accessed Dec. 27, 2019.

State of Washington. Business Licensing Service. " Types of Business Structures. " Accessed Dec. 27, 2019.

Digital Media Law Project. " State Law: Forming a Partnership ." Accessed Dec. 27, 2019.

IRS. " Employer ID Numbers ." Accessed Dec. 27, 2019.

Digital Media Law Project. " Partnership Agreements. " Accessed Dec. 27, 2019.

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Partnership business: what it is & how to successfully create one.

Woman and Asian male boss smiling while working together. They discuss business while looking at a digital tablet.

Published: January 03, 2024

Updated: January 04, 2024

What is a partnership business? Explore the benefits and drawbacks of a partnership business, the types of partnership businesses that exist, and how to set one up.

There are many ways to form a business, and each has its own distinct advantages and drawbacks. The four main types of business entities are partnership, sole proprietorship, corporation, and limited liability company (LLC).

A partnership business, by definition, consists of two or more people who combine resources to form a business and agree to share risks, profits, and losses. Common partnership business examples include law firms, physician groups, real estate investment firms, and accounting groups.

By comparison, a sole proprietorship places all the responsibilities, risks, and rewards of operating the business on one person, while a corporation operates as its own legal entity, separate from the individuals who own it.  An LLC  is a hybrid of a partnership and a corporation that allows its owners (known as members) to earn profits and losses without incurring personal liability for the company’s debts.

For many individuals, going into business with a partner offers a chance to build experience and expertise with others. This article takes a deep dive into partnerships, what they are, how they work, and how to manage them.

What Is a Business Partnership and How Does it Work?

A business partnership is an arrangement in which two or more individuals co-own a business entity and share in its profits and losses. This co-ownership is formalized through a partnership agreement that outlines roles, responsibilities, and profit-sharing structures. 

Business partnerships can take several forms, each with unique characteristics:

  • General partnerships (GPs):  All partners are equally liable for the organization’s debts, obligations, and liabilities.
  • Limited partnerships (LPs):  Some partners have limited liability and restricted management roles, while others, known as general partners, assume full liability.
  • Limited liability partnerships (LLPs):  All partners can actively manage the business, with liability protections for all partners. Specifics vary by state, but partners in an LLP are typically not personally liable for business debts or the negligence of other partners.
  • Limited liability limited partnerships (LLLPs):  All partners have limited liability against partnership obligations, even those stemming from the actions of their co-partners. However, only general partners can actively manage the business.

Advantages and Disadvantages of a Partnership Business

Understanding the  pros and cons of forming a partnership  can help you decide whether it’s the most beneficial structure for your organization.

  • Stronger financial position:  The ability to pool resources can provide your business with more capital and access to new investors, while better positioning the company to borrow money. Sharing business expenses with partners can also help you save more than you could on your own.
  • Shared expertise:  Sharing skills and institutional knowledge is a key benefit of a business partnership. This can help broaden your expertise and the versatility of your business.
  • A broader network:  By sharing contacts and connections with business partners, you can develop new relationships and expand your professional network.
  • Fresh eyes:  Bringing in partners  can provide new perspectives on how you do business by seeing things from a different angle. Partners can offer fresh ideas, market strategies, and inspiration to grow your business.

Disadvantages

  • Liability:  The primary drawback of a general partnership is that all partners are fully liable for the financial obligations of the business and share losses, debt, and risk. This means creditors can seize any partner’s personal assets if these obligations aren’t met.
  • Loss of full control:  Unlike sole proprietors, who are used to complete decision-making autonomy, partners in a partnership must share decision-making authority and may need to compromise when there’s a disagreement.
  • Potential for conflict:  Having more than one person making business decisions creates the potential for differences of opinion that can lead to conflict. Partners may also become bitter if they feel like one person isn’t contributing his or her fair share.
  • Difficult to sell:  A partner can’t sell a business without the consent of all the other partners, unless stated otherwise in a partnership agreement. This could potentially create a stalemate if and when a partner wants to leave.
  • Risk of instability:  Without a comprehensive, predetermined partnership agreement in place, unexpected events, like a  partner’s decision to leave , their death, or an illness may put the future of the company in jeopardy.

How to Create a Partnership Business

Working with one or more partners can add complexity to setting up a business. Adhering to certain steps can help simplify the process.

Select a partnership structure 

To determine the ideal partnership structure, assess your liability preferences an desired management structure. Investment needs and future business goals can also dictate the best partnership choice. For instance, if you’re seeking significant external investment without giving investors a role in daily management, an LP might be ideal. Conversely, if you anticipate rapid growth and want to limit personal liabilities while maintaining managerial control, an LLP or LLLP could be a better fit.

State-specific laws can also affect partnership functions and rights, so that may be another consideration to keep in mind.

Choose partners and their roles 

Find partners you trust, as this decision sets the tone and terms of your business. Decide how much it will cost to join the partnership, what percentage of the profits each partner will receive, and which roles and responsibilities each partner will have. Some partners may contribute equity or ownership share in the business, while others might be salaried partners who are paid as employees. 

Name your business 

Your partnership’s name is often a prospect’s first impression of your business. Consider a name that accurately represents the purpose of your partnership business or that incorporates the names of your partners as well as any designations, such as LLP or GP. Make sure to  pick a unique name  that isn’t already in use or trademarked to prevent legal complications.

Register your partnership 

In the U.S., partnership businesses must  register their names  with the state in which they plan to operate. Additionally, registration might be necessary to obtain the appropriate business licenses or permits required by that state or local jurisdiction. Note that specific requirements can vary from state to state. Registration is typically required to open a business bank account, and will also help prevent inadvertently choosing the same name as an existing business.

Obtain a business identification number

In the U.S., business partnerships must obtain a business identification number from the Internal Revenue Service (IRS). 

Create a partnership agreement

After you and your partners agree to their roles and responsibilities, get everything in writing. An attorney can help you draft a business partnership agreement to detail provisions, such as each partner’s rights and duties, financial obligations, profit distribution, ownership, dispute resolution, confidentiality, and exit strategy.

Secure necessary licenses and permits 

To comply with federal, state, and local laws and regulations, partnerships may need specific permits or licenses to operate. For instance, the nature of the business activity and where it’s located can dictate state licensure requirements. Certain business activities may also require specialized licenses. For example, restaurants might need health permits, liquor licenses, or music licensing. Professional services – such as law, medicine, or accounting – often need professional licenses.

Bringing in partners can provide new perspectives on how you do business by seeing things from a different angle. Partners can offer fresh ideas, market strategies, and inspiration to grow your business.

The Business Partnership Agreement

A business partnership agreement is a written contract between partners that specifies their obligations and contributions to the business, as well as other conditions of their relationship. Every business partnership agreement should detail the following clauses:

  • Who makes decisions:  Determine how you will make important decisions and what to do when partners disagree or when there’s a tie.
  • Percentage of ownership:  It’s important to calculate and clarify how much of the business each partner owns. Also indicate how much money each partner contributed upon joining the business, and what should happen if the business needs more money to operate.
  • Distribution of profits and losses:  Set a formula for how partners will share earnings as well as losses. This might be based on ownership percentage, specific roles, or other criteria.
  • Exit and transition strategies:  Come up with contingency plans for what should happen if a partner dies, becomes disabled, or wants to leave the company. Specify the rights of the remaining partners in such situations.

Does a Partnership Business Make Sense for Your Company?

Before you decide whether a partnership is the ideal business type for your organization, consult with an outside expert to carefully consider the following:

  • Legal liability:  How much liability is ownership willing to assume? If you’re adequately insured and can afford to put your personal assets at risk, the financial opportunities of a partnership might be worth the risk.
  • Long-term plans:  Look ahead to what might happen to the business in the future. In a partnership business, it’s important to consider who will take over the business after the founding partners are no longer involved.
  • Costs:  Although corporations offer stronger liability protection compared to partnerships, they require more extensive record-keeping and reporting, thus incurring higher administrative costs than other business entities. They’re also the most expensive business type to form, making partnerships a more attractive option for many.
  • Operational freedom:  The business structure you choose can dictate how much flexibility, administrative responsibilities, and decision-making power you’ll have. Corporations tend to be the most restrictive in these areas. If you’re looking for more freedom, less bureaucracy and the authority to call the shots, a sole proprietorship might be the right choice for you. Partnerships fit somewhere in between, combining the benefits of autonomy and shared decision-making responsibilities.

The Bottom Line

Business partnerships have many advantages for someone looking to form a new company. Because they include several variations from which to choose, partnerships often combine the best attributes of other business types, offering flexibility around costs, liability, and autonomy. Selecting the right business type, however, often comes down to the unique circumstances of each business. Consider consulting legal and business experts to understand the implications of each business type, as well as the various federal and state requirements necessary to create them.

A version of this article was originally published January 15, 2020.

Photo: Getty Images

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The Beginner’s Guide to Business Partnerships

It’s a dream for many entrepreneurs to start a business with a friend, family member, or colleague. But just because you know somebody personally, it doesn’t always mean that the business relationship will go smoothly.

Forming a business partnership can formalize the relationship and provide clarity on how the partners will operate. 

Lots of people have misconceptions about partnerships and how they work, which is why we created this guide. If you’re starting a company with one or more partners, a formal business partnership can help save you from many hassles and headaches down the road. 

Quicksprout.com's complete beginner's guide to business partnerships

What is a Business Partnership?

Business partnerships are legal relationships between two or more people. The partners both invest money into the company and share profits and losses. 

Partnerships alone are not always viewed as separate entities from the business owners. Business partnerships are similar to sole proprietorships in the sense that the partnership isn’t taxed separately from the owners, and the partnership isn’t always shielded with liability protections. 

The Basics of Business Partnerships

Let’s take a closer look at business partnerships at a higher level. Below we’ll dive deeper into partnership types, eligibility, taxes, and more.

Types of Business Partnerships

There are four main types of business partnerships—general partnerships, limited partnerships, limited liability partnerships, and limited liability limited partnerships. 

Here’s a basic overview of how each of these works:

General Partnership (GP)

General partnerships are the most basic form of a business partnership. This doesn’t require any formal business entity or registrations with the state. 

Typically, two or more partners can formalize this relationship simply by drafting a partnership agreement. 

It’s common for partners to split the profits and ownership evenly, although certain partnerships might agree to different terms depending on their initial contributions. 

All partners each have independent power to sign contracts and take out loans on behalf of the partnership. Everyone in the partnership also has complete liability, meaning everyone is responsible for legal obligations and debts. 

For example, let’s say you’re part of a general partnership with three other people. If one partner takes out a loan on behalf of the company and you can’t repay it to the lender, all of the partners are personally liable for the debt. 

GPs are easy to form and easy to dissolve as well. In many cases, the partnership will automatically dissolve if a partner goes bankrupt or passes away. 

Limited Partnership (LP)

Limited partnerships are more formal than a GP. These are legal business entities that have been authorized by the state of operation. 

LPs have at least one general partner who is responsible for the business. They also have limited partners who provide financing but aren’t actively involved in the company’s operations. Limited partners can invest in the company for financial returns, but they’re not on the hook for liabilities and debts. 

Limited partners or silent partners can’t lose more than they’ve invested in the business. But if they start to participate in active management of the company, they could lose their status as a limited partner and be subjected to debts and liabilities. 

Limited Liability Partnership (LLP)

Limited liability partnerships (LLPs) operate similarly to a general partnership. All partners can actively manage the company, but liability is limited for each partner’s actions. 

Each partner is still responsible for legal liabilities and business debts, but they aren’t liable for any errors and omissions of other partners. 

Not every state allows the formation of LLPs. In many cases, this type of partnership is limited to specific professions like lawyers, doctors, and accountants. 

Limited Liability Limited Partnership (LLLP)

LLLPs are somewhat new and not available in every state. 

This type of partnership operates similarly to an LP in the sense that there’s at least one general partner responsible for managing the operation of the business. But unlike an LP, the general partner also has liability protections, providing all of the partners with liability coverage. 

Since LLLPs aren’t recognized across state lines, it’s best to avoid this if your partnership will do business in multiple states. It’s also worth noting that since this type of partnership is new, the liability protections haven’t been fully tested in the court systems—so proceed with caution.  

Types of Partners

Partners in a business partnership can be individuals, companies, groups of people, corporations, non-profits, governments, and more. 

Depending on the type of partnership formed, partners can have different roles and responsibilities. For the most part, partner types can be segmented into the following categories:

  • General Partners — General partners manage the business and are responsible for the debts and liabilities of the partnership. 
  • Limited Partners — Limited partners invest in the business but don’t have any control over the operations or management. LPs can only lose up to the amount that they’ve invested, but nothing more. In most cases, LPs aren’t responsible for debts or liabilities. 

Some partnerships have different levels within these categories. For example, a law firm might have junior partners and senior partners. Senior partners might have a greater level of input and investment level than junior partners. 

Business Partnership Taxes

Partnerships do not pay income taxes. Similar to a sole proprietorship, partnerships are pass-through entities, where individual partners are responsible for paying taxes on their personal returns based on their share of income from the partnership. 

All income, gains, credits, deductions, and losses from the partnership must be reported to the IRS on Form 1065.

Partners are not employees and should not be given a W-2. Instead, Schedule K-1 documents are filed for each partner.

The IRS has lots of resources dedicated to tax information for partnerships . You can check out this page for more specific details on the forms, self-employment taxes, and more. 

Partnership Agreements

To be sound, business partnerships need to be put in writing. This is commonly done in the form of a partnership agreement. 

While these agreements aren’t necessarily a legal requirement, they can help protect your personal interests for the duration of the agreement. Every partnership is different, but the following components are commonly included in a partnership agreement:

  • Partner roles
  • Partner authorizations
  • Duties and responsibilities of each partner
  • Capital contributions of each partner
  • Rights to profits, distributions, and compensation
  • How losses will be handled
  • Voting requirements
  • Dissolution terms
  • Exit strategy
  • Buy-sell provisions or buy-sell agreements
  • Expulsion provisions
  • Noncompete provisions

Many partnership agreements have different miscellaneous provisions as well. It all depends on the type of business you’re forming and what the goal of the partnership is.

3 Tools to Improve Business Partnerships

The following solutions will help formalize your business partnerships:

#1 — LegalNature

how to plan a business partnership

LegalNature is one of the best business resources for online legal documents. The platform allows you to create a partnership agreement by answering some simple questions. There’s a basic version and comprehensive version of the document—both are legally binding agreements.

You’ll start by providing information about the partners and business purpose. Then you’ll define voting, management, meetings, operations, finances, and other administrative provisions.

Legal documents from LegalNature start at $34.95 per document. Alternatively, you can subscribe for $39 per month or $119 per year for access to all documents. Try it free for seven days.

#2 — LegalZoom

how to plan a business partnership

LegalZoom is an industry leader in the online legal services and business formation space. They have a wide range of solutions for entrepreneurs, small business owners, personal legal services, and more. 

Even if you’re not forming a legal business entity, LegalZoom’s business advisory services can help guide you through the partnership process. This service starts at just $31.25 per month. LegalZoom can also help you with business licenses, DBAs, a federal tax ID, and liability protections for your partnership. 

#3 — Rocket Lawyer

how to plan a business partnership

Rocket Lawyer is another fast and hassle-free way to create a partnership agreement. You can use the platform for other crucial documents like a limited partner agreement, joint venture agreement, silent partnership agreement, partnership dissolution agreement, and more.

All of these added documents can help legally formalize the relationship between you and your partners. It keeps everyone on the same page and ensures transparency for all. Rocket Lawyer charges $39.99 per document, but premium members have access to legal documents for free. The membership costs just $39.99 per month and comes with added perks like free attorney services. 

5 Tips For Successful Business Partnerships

As previously mentioned, business partnerships can be tricky. But the following tips can make it easier for you to quickly evaluate your compatibility with a potential partner. 

Tip #1: Make Sure Your Partners Share the Same Core Goals and Values

Before you start drafting a partnership agreement or writing a business plan, you need to make sure that your partners have the same values as you. If you’re going into business with someone who has different goals than you, it can create lots of challenges down the road.

Let’s say your dream is to become the next McDonald’s. But your partner just wants to do some part-time catering on the weekends. This scenario would pose a problem.

Partners should have the same work ethic, aspirations, and values to succeed. If one partner wants to spend as much time as possible with their family, but the other wants to work 24/7 to make the most amount of money, the partnership will probably fail.

Tip #2: Find Partners With Complementary Skill Sets

The best business partnerships are formed by people who can bring different skills to the table. 

Maybe your strengths are accounting and finance. You might work well with a partner who has excellent sales experience. Then you could also look for partners with technical expertise, creative skills, or marketing knowledge. 

If you form a partnership of four people and you all have a marketing background, the partnership’s finances will likely struggle. 

But a blend of complementary skills allows everyone to focus on what they do best while letting the other partners shine in their own areas of expertise. 

Tip #3: Look For Partners With a Proven Track Record

Not every partnership requires previous business experience with each other. But you should work with someone who has gone through similar challenges as you and handled them successfully. 

For example, maybe you and a close friend have handled tough times or adversity together. If the adversity in your personal life didn’t tear you apart, then it could be a good sign that you can work together. 

Or maybe you and a colleague have achieved common goals at work. You know that this person can handle themselves under pressure, and they’ve seen that you can handle yourself as well. 

These are the types of experiences that can make great partnerships. 

Tip #4: Clearly Define the Roles, Responsibilities, and Duties of Partners

Partner roles must be clearly established from the beginning. While you may think that you can get away with an informal structure right now, it’s impossible to scale long-term without putting things in writing. 

This also limits potential problems and conflicts down the road. 

For example, let’s say that one partner decided to take charge of managing the day-to-day operations of the business. But one day, they just decide that they want to take a step back and stop doing so. 

Without a partnership agreement, this action could potentially destroy the partnership. Nobody will be held accountable for their responsibilities and actions, which can cause individuals to overstep boundaries or potentially slack off. 

Tip #5: Prioritize Honesty and Communication

At the end of the day, a business partnership is still a business. You need to take a step back from your relationship and understand that any words, actions, or decisions for the business aren’t personal. 

If you can’t communicate and be honest with your partners, then your partnership probably won’t succeed. Sweeping your feelings under the rug usually leads to resentment and bitterness down the road, which is a recipe for disaster. 

Even if some discussions are a bit uncomfortable, putting things out in the open helps keep all partners on the same page—even if you don’t always see eye-to-eye. 

What to Do Next

Now that you understand how partnerships work, it’s time to take this relationship to the next level. Check out our guide on the best business formation services to form a legal entity for your partnership. This will also add liability protections that aren’t offered in a general partnership. You should also put together a formal business plan for your partnership.

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Navigating Business Partnerships: Your Comprehensive Guide to Success

Navigating Business Partnerships: Your Comprehensive Guide to Success

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Deciding on a legal business structure is a critical first step when starting a new company. It impacts everything – from how you report income and your level of personal liability to compliance with legal obligations at all governmental levels.

For many, forming a business partnership is a strategic move. Partnerships can offer a synergy of expertise and resources, creating a collective capability greater than the sum of its parts. Unlike an LLC, a partnership implies that the business is conducted by individuals who share the management and profits.

What is a partnership?

A partnership is when two or more people or groups agree to run a business together. Each partner shares in the profits, losses, and business decisions. Partnerships can be formed between individuals, businesses, or organizations – anyone who wants to work together to make a profit and move forward with shared goals. Simply put, it's a team running a business, sharing the ups, downs, and responsibilities.

how to plan a business partnership

Once you’ve formed a partnership, it’s pivotal to clearly and legally document the understandings and expectations between partners. This step ensures a smoother business operation and helps prevent potential disputes. This brings us to another crucial term – the partnership agreement , which outlines the detailed terms and conditions among partners.

What is a partnership agreement?

A partnership agreement is a contract between business partners. It answers: Who owns what? Who does what? How will profits (and losses) be shared? It also sets the rules for solving disagreements and explains what happens if a partner leaves or passes away. It's a safety net, ensuring everyone knows the plan and preventing future disputes.

In my nearly 30 years as an attorney, entrepreneur, and advisor, I have navigated the nuances of different business structures, often evaluating the unique benefits and challenges of forming a partnership. And as an attorney, I’ve drafted hundreds of partnership agreements for various ventures. And I was a partner in numerous legal partnerships (which historically had to be structured as partnerships). This guide is your roadmap, with practical advice, actionable tips, and best practices from mentoring hundreds of entrepreneurs and small businesses and helping thousands start and expand their ventures.

Partnerships: A Comprehensive Guide

Types of business structures, benefits of forming a partnership, disadvantages of partnerships, types of partnerships, taxes and partnerships, how to start a partnership, partnership agreement: everything you need to know, frequently asked questions about partnerships.

Before diving into the details, let’s look at the popular types of business structures :

Sole proprietorship: This business is owned and operated by a single individual. This person maintains complete control over the company but bears all the risk.

LLC (Limited Liability Company) : This business structure merges the characteristics of corporations, partnerships, and sole proprietorships. It provides limited liability protection to its owners or members.

Corporation : A corporation is a business entity legally separate from its owners or shareholders. It can sell shares of stock to raise capital, something a sole proprietorship or partnership can’t do.

Hire an expert to form your company and save time. Our trusted partners can help: Northwest ($39 + state fee) or Bizee ($199 + state fee) . We recommend Northwest. After evaluating the leading registration companies, Northwest stands out as our top choice due to its competitive pricing, exceptional customer support, and commitment to privacy. Pay just $39 + state fees and you'll get a free year of registered agent service, articles of organization, privacy, and client support from local experts.

Embarking on a business journey with a partner isn’t just about having company. It’s about combining strengths, sharing responsibilities, and multiplying resources to create a resilient, resourceful, and robust venture.

Forming a partnership can weave a safety net, enabling the business to take leaps with shared risk and blend diverse skills to brew innovation and stability. From shared financial responsibilities to melding distinct skills, a partnership opens up a world where mutual benefits are not just possible but are often amplified. Here are fifteen tangible benefits for people when choosing a partnership structure:

  • Shared responsibility. Partnerships often result in shared responsibility, which can lessen individual load. If one partner is adept at digital marketing, they can focus on online promotions, while the other, perhaps skilled in operations, manages order fulfillment. In a retail shop, one partner could manage in-store operations while the other takes care of supplier relationships and inventory management.
  • Diverse skill set. Partners often bring varied skills and expertise, enhancing the business’s capabilities. One partner could focus on website design and UX design, while the other manages content creation and customer service. One partner could specialize in sales and customer interaction on the shop floor, while the other could focus on back-end operations and stock management.
  • Enhanced creativity. With more minds at work, partnerships often foster enhanced creativity and innovation and can help you develop the best business ideas . An online design store can have one partner focused on creating unique designs while the other ensures they are showcased innovatively on the platform. While one partner brings innovative culinary ideas to a restaurant, the other might introduce fresh, customer-engaging service strategies.
  • Risk mitigation. Having a partner means risks, especially financial ones, are shared. Both partners share the financial burden if an e-commerce platform fails to perform as expected. In a physical store, if a new product line doesn’t sell as projected, both partners absorb the financial impact.
  • More resources.  Partnerships can mean access to more resources, such as capital, clientele, and industry contacts. In an IT firm, one partner might bring in financial investments while the other brings a rich client database. In a consultancy , one partner may offer a spacious office for client meetings while the other brings in crucial industry contacts.
  • Networking opportunities. More partners typically equate to a wider network, which can be leveraged for business growth. An online advertising agency can benefit from one partner’s digital influencer contacts while utilizing the other’s connection with ad platforms. In a real estate business , one partner’s connections with property dealers and the other’s links with advertising agencies can be beneficial.
  • Improved decision-making. Different perspectives often lead to well-rounded decision-making. In a digital magazine, editorial and technical decisions can be balanced between partners with expertise in each field. In a bookstore, one partner might select the inventory based on literary knowledge, while the other ensures technological tools (like point-of-sale [POS] systems) are updated and efficient.
  • Flexibility . Partnerships often provide flexibility in management and operations. In an e-learning platform, partners can manage course updates and student interactions alternately, ensuring continual operation even during vacations. In a clinic, partners can alternate their duty hours to provide consistent services without burnout.
  • Tax benefits.  Partnerships can offer various tax benefits, depending on jurisdiction. An online consultancy might benefit from tax deductions available for partnerships in its operational domain. A manufacturing unit run as a partnership may avail of certain tax credits available in its location.
  • Easier to form. Forming a partnership can often be less complex and requires fewer formalities, paperwork, and expenses. Two freelancers might combine services and form a partnership firm with minimal documentation. Two artisans might join to create and sell products in a shared physical space with less bureaucratic involvement.
  • Boosted financial capability. A partnership can amplify a business’s financial prowess by pooling all partners’ monetary resources and creditworthiness. In a SaaS business , while one partner might inject direct capital, the other might facilitate a loan due to their robust credit history. A coffee shop partnership might see one partner contributing more towards initial capital while the other agrees to a higher profit-sharing ratio to balance the scales.
  • Companionship and moral support.  A partner can offer emotional and moral support, making the entrepreneurial journey less isolating. When running an online retail store, partners can buoy each other during slow sales, brainstorm new strategies, and provide moral support. In a physical fitness center, when one partner feels disheartened due to challenging situations, the other can provide encouragement and shared resolve to navigate through.
  • Client satisfaction.  With multiple partners, client needs can be addressed more comprehensively and responsively. A digital marketing firm can provide client services across varied time zones, with partners strategically located in different regions. A consulting firm with partners specialized in various domains can offer clients a one-stop solution, enhancing client satisfaction and retention.
  • Flexibility in ownership transfer.  Partnerships generally facilitate smoother transitions in ownership compared to other business structures. In an online tutoring platform, a partner wishing to exit can transfer their ownership stake to the remaining partner or a new entity more fluidly. In a law firm, a retiring partner might transfer their stake to an existing partner or a new entrant, ensuring continued business operations without complex restructuring.
  • Greater borrowing capacity.  Partnerships often have a larger borrowing capacity than sole proprietorships due to combined assets and credit. An e-commerce partnership might secure a more substantial loan to scale operations, utilizing the combined assets and collateral of the partners. A manufacturing business partnership could leverage partners’ combined creditworthiness to secure better borrowing terms for expansion or upgrading machinery.

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Being tethered to another person or entity in business could mean conflicts, liability, and intricate financial management. Here are ten potential drawbacks of partnerships:

  • Conflict in decision making. Decisions might be contested when more than one person is involved, and conflicts can arise. Two partners in an e-commerce platform might disagree on inventory purchasing decisions. Partners in a bookstore might have conflicts over which books to stock and promote. This is common in other types of entities, too. Over the years, I’ve had many conflicts with partners in partnerships, LLCs, and corporations. However, this is often legally more complicated in partnerships because they are often equal, and it’s not always clear who makes the final decision.
  • Joint liability.  All partners share the burden of business debts and liabilities. All partners in a digital marketing agency may be liable for a debt incurred due to a failed campaign. In a restaurant business, partners are responsible for any debts accrued due to a failed event or investment.
  • Profit sharing.  All profits have to be shared among partners, sometimes leading to discontent. Profits from a thriving online coaching platform must be distributed among all partners, potentially sparking disputes. Profits from a successful promotional event at a retail shop must be shared among partners, possibly igniting conflicts.
  • Limited capital.  Raising funds can be limited to the personal funds or creditworthiness of the partners. An app development partnership may find difficulty scaling due to limited capital investment. Due to constrained capital, a dental practice partnership may struggle to expand to new locations.
  • Business continuity.  Partnerships may face continuity issues due to the withdrawal or death of a partner. An online consultancy may face disruptions if a key partner departs unexpectedly. A partner’s sudden exit from a law firm could potentially destabilize client relationships and ongoing cases. I’ve seen this happen often at law firms and other professional partnerships.
  • Diverse risk appetite. Partners might have different thresholds for risk, which can influence business strategies. A partner in a FinTech startup might be reluctant to explore a new, innovative, but risky feature, contrary to the other’s willingness. Partners in a construction business might disagree on taking up a large, potentially lucrative, but risky project.
  • Limited expertise.  Limited to the partners’ skills and knowledge, some areas may lack expertise. A blogging platform run by content creators might lack technical optimization due to limited IT knowledge. A physiotherapy clinic may not optimize its marketing strategies due to a lack of marketing expertise among the partners.
  • Shared losses.  All partners have to bear losses, which can impact personal finances. If an online retail business incurs losses, the personal savings of all partners may be impacted. In an event management partnership, a failed event could dent the personal financial health of all partners.
  • Complicated exit strategy.  Exiting or dissolving a partnership can be complex and may affect business operations. Leaving or dissolving a partnership in a web development business might disrupt ongoing projects. A partner’s exit from a salon business might involve intricate valuation and division of assets.
  • Customer trust. When a partner leaves or a partnership dissolves, it might erode customer trust and loyalty. In a SaaS business, customers might feel uncertain about the continuity and reliability of the service upon changes in partnership. Patrons of a local cafe might be skeptical about quality consistency if a well-known partner departs.

Recognizing these potential challenges allows prospective partners to tread wisely, crafting strategies that mitigate these risks and leveraging the benefits to navigate the potential hurdles of partnership businesses.

Partnerships are not a one-size-fits-all model. There are various forms, each bearing its distinct set of rules, liabilities, and operational methods:

General Partnership (GP)

All partners share equal rights, responsibilities, and liabilities in a general partnership.

Best for: Consulting firms, law practices, small retail businesses, and local service providers. Not ideal for: Ventures with unequal investment or involvement, high-risk businesses, and tech startups with substantial liability.

Limited Partnership (LP)

Some partners enjoy limited liability and are not involved in management, while others have unlimited liability and manage the business.

Best for: Real estate investment groups, film production companies, family businesses wanting to involve silent members, and venture capital firms. Not ideal for: Small businesses with active partners, technology companies, and businesses that require all partners to be involved in management.

Limited Liability Partnership (LLP)

All partners have limited liability and can be involved in business management.

Best for: Professional practices like law and accountancy firms (my law firms started as partnerships and converted to LLPs when state laws permitted this conversion), consulting businesses, medical practices, and design agencies. Not ideal for: Businesses desiring simplicity in structure, sole proprietorships, manufacturing businesses with high liability.

Joint Venture

Two entities come together for a specific project or a specified period.

Best for: Construction companies on a specific project, tech companies collaborating on a product, multinational business expansions, and research and development projects. Not ideal for: Ongoing, long-term businesses, small local businesses, independent entrepreneurs, and ventures requiring a singular brand identity.

Strategic Alliances

Businesses collaborate and form strategic partnerships for mutual benefit without forming a new entity.

Best for: Airlines sharing certain routes, e-commerce, and retail collaborations, tech companies sharing technology, and cross-promotional marketing campaigns. Not ideal for: Businesses desiring shared liability and responsibility, ventures that need a unified brand, and small businesses with limited resources.

Limited Liability Limited Partnership (LLLP)

A variation of the LP where even general partners can have limited liability.

Best for: Large investment projects, family estate planning, agricultural operations, and certain real estate investments. Not ideal for: Small scale businesses, tech startups, businesses with straightforward operational needs, and single-location service providers.

Depending on different businesses’ unique financial and operational configurations, partnership taxes could be either an ally or an adversary. While a partnership as a business entity does not pay taxes, the profits pass through to partners who report this income on their personal tax returns.

Businesses that benefit from partnership taxation

  • Consulting firms. Shifting income among partners can optimize individual tax scenarios.
  • Real estate investment groups. Using pass-through taxation to manage investment gains and losses effectively.
  • Small local retailers. Capitalizing on simplicity and avoiding double taxation.
  • Family businesses. Managing estate planning and wealth transfer with a flexible partnership structure.
  • Law practices.  Mitigating liability and enjoying the flexibility of distributing profits.
  • Freelance and creative agencies. Navigating varying incomes through beneficial income-splitting among partners.
  • Joint ventures in research and development. Appropriating expenses and research credits optimally among entities.
  • Professional practices (e.g., doctors, architects). Managing professional income with flexibility among partners.
  • Craftsmanship businesses (e.g., boutique craft shops). Handling often fluctuating incomes and expenditures in a straightforward manner.
  • Educational services. Distributing educational revenue and operating expenses effectively among partners.

Businesses potentially disadvantaged by partnership taxation

  • High-tech startups. Potential challenges with investment funding and allocation of losses.
  • Large-scale manufacturing businesses. The complexity in managing and allocating large expenses and revenues.
  • Corporations with international operations. Navigating through international tax law and potential double taxation issues.
  • Venture capital firms. Managing investor returns and extensive financial portfolios.
  • E-commerce giants. Handling extensive online transactions, international sales, and VAT.
  • Robust franchise operations. Distributing income and managing expenses across various entities.
  • Large agricultural businesses. Allocating extensive operational costs and managing international trade.
  • Biotech companies. Allocating extensive R&D expenses and managing investor relations.
  • High-risk businesses (e.g., adventure tourism). Balancing high liability with the fiscal flexibility of a partnership.
  • Companies with high capital expenditure (CAPEX) . Managing the allocation of significant CAPEX and related depreciation.

1. Choose a business name

Your partnership’s business name must embody your brand while adhering to your state’s regulations. Typically, it should be unique and not misleadingly imply that you’re a government agency or an unauthorized industry.

Brainstorm potential names and ensure they align with your brand message. Run a name check to confirm that no business in your state has claimed it. Also, check for available domain names to create a business website with the same name.

2. Draft a partnership agreement

This crucial document outlines how your partnership will function. Though not legally required in all jurisdictions, a partnership agreement can prevent future disputes.

Consider hiring a business attorney to draft the agreement. This document should cover, at minimum, the following topics:

  • The distribution of profits and losses
  • The roles and responsibilities of each partner
  • The procedures for adding or removing partners
  • The procedures for dispute resolution
  • The protocol in the event of dissolution of the partnership

Be sure all partners sign the agreement. Doing so is crucial for mutual understanding and legal clarity. The process is hassle-free when you sign documents online .

We go into more detail below on the key terms of a partnership agreement and the pitfalls you should avoid.

3. Register your partnership

Your partnership must be registered with the appropriate state agency, often the Secretary of State.

Check with your state’s Secretary of State office or a legal advisor for the specifics in your area. In most cases, you’ll need to file a document known as a “Statement of Partnership Authority.” This document generally includes details about your business name, purpose, duration of the partnership, and information about each partner.

4. Obtain an EIN

An Employer Identification Number (EIN) is your partnership’s Social Security number. The IRS uses it to track your business’s tax obligations. Even if you don’t have employees, an EIN is usually necessary.

Apply for an EIN through the IRS website—it’s free and straightforward. After submitting your application, you will immediately receive your EIN. The IRS has a helpful checklist to help you decide whether you need an EIN to run your business.

5. Open a business bank account

A separate business bank account helps you keep your business finances separate from your personal finances, making tax time much easier. It also lends credibility to your business.

When opening a bank account, choose a bank that caters to small businesses. Prepare to provide your partnership agreement, EIN, and business registration documents.

6. Register to do business in other states (if necessary)

If your partnership will do business in states other than where you registered, you’ll likely need to register your business there.

Each state has different rules regarding what constitutes “doing business” in their jurisdiction. Consult with a legal advisor to understand whether this step is necessary. Registration usually involves filing a similar form to the one you filed with your home state and paying an additional fee.

7. Obtain necessary permits and licenses

Depending on your industry and location, your partnership may need specific business licenses or permits to operate legally.

Research federal, state, and local requirements and apply for necessary permits and licenses. You can use the U.S. Small Business Administration’s license and permits tool as a starting point.

By following these steps, you’ll ensure your partnership has a solid legal foundation, giving you peace of mind to focus on growing your business.

Embarking on a business journey with a partner requires trust, mutual goals, and a robust partnership agreement that stands the test of time and tribulations. Here are the vital components and the actionable strategies to bolster each item in a partnership agreement.

Ownership percentages

Clearly outline the specific percentages owned by each partner, avoiding generalized statements. Employ precise language and formulas to describe how ownership percentages might change in various scenarios.

Protect against: Discrepancies or disagreements about ownership due to vagueness or oversights in the document—lack of clear procedures for recalculating ownership percentages in the event of capital changes.

Profit and loss allocation

Define explicit mechanisms or formulas for allocating profits and losses among partners. Include clauses for exceptional circumstances, such as unexpected losses or extraordinary profits. Protect against: Conflict arising from perceived unfair distribution, especially in scenarios not covered in the agreement—legal challenges due to ambiguous or non-compliant profit and loss allocation methods.

Roles and responsibilities

Detail each partner’s duties, powers, and limitations, ensuring clarity and specificity. Establish mechanisms for adjusting roles and responsibilities as the business evolves. Protect against: Conflicts or inefficiencies due to overlapping or unclear roles. Legal or operational issues arising from failure to adhere to documented responsibilities.

Dispute resolution

Specify a detailed, step-by-step process for resolving internal disputes to avoid court battles. Incorporate a clause mandating mediation or arbitration before any legal action. Protect against: Ignoring minor disputes that could escalate into larger, more damaging conflicts—encountering a stalemate situation if the agreement is too vague or doesn’t cover a particular dispute.

Capital contributions

Clarify the initial contributions and any additional contributions required from partners. Outline procedures and conditions for raising additional capital in the future. Protect against: Financial stress due to unclear or insufficient capital contribution arrangements. Disagreements about valuation and equity when accepting additional capital contributions.

Decision-making protocols

Enumerate key decisions that require unanimous consent and those that can be made individually. Develop a system or voting mechanism for making collective decisions. Protect against: Experiencing delays or disruptions due to a lack of decision-making structures. Encountering dissension from partners who feel sidelined or overruled in the decision-making process.

Partner exit and succession planning

Define clear exit strategies, including buyout clauses and valuation methods. Implement a structured succession plan for seamless transitions during partner exits. Protect against: Fumbling business continuity during an unexpected exit or transition. Engaging in legal battles over partner exits due to poorly defined exit clauses.

Death or incapacity of a partner

Establish guidelines and procedures for managing the business interest of a partner who becomes incapacitated or passes away. Specify the rights of heirs or successors to a partner’s business interest. Protect against: Enduring business disruption and potential discord with heirs due to the absence of a clear plan. Navigating through legal complexity regarding inheritance and stakeholder rights without clear direction.

Non-compete and confidentiality clauses

Draft precise non-compete clauses defining the scope, duration, and geography to protect the business. Incorporate strict confidentiality clauses safeguarding business secrets and proprietary information. Protect against: Experiencing damage from a partner who engages in competing ventures or leaks sensitive information—facing legal challenges for enforcing overly restrictive or vague non-compete clauses.

Amendments to the agreement

Specify the process and any necessary approvals for amendments to the partnership agreement. Ensure flexibility while maintaining a structure that prevents arbitrary changes. Protect against: Encountering disagreements or legal issues due to inadequate procedures for making amendments and limiting the business’s adaptive capability by making the amendment process overly rigid or cumbersome.

Business sales and transfers

Define the conditions under which business assets or the entire business can be sold . Specify the partners’ rights, such as the right of first refusal, in the event of a proposed sale. Protect against: E ngaging in disputes over the validity of a sale or transfer of business shares. Encountering unexpected exits or entries of partners due to unscheduled sales or transfers.

Financial management and distribution

Clarify protocols for financial management, including budget approvals and financial reporting. Detail the procedures and schedules for distributing profits among partners. Protect against: Mismanagement of finances or inequitable distribution leading to internal conflicts—legal scrutiny or penalties due to non-compliance with financial management norms.

Admission of new partners

Describe the process, conditions, and any restrictions for admitting new partners. Specify any changes to existing partners’ equity, roles, and responsibilities when a new partner is admitted. Protect against: Disrupting business harmony due to the unsystematic admission of new partners and altering the equilibrium of control and influence among existing partners.

Resolution of violations

Develop a mechanism to handle violations of the agreement by partners. Include provisions for penalties, reparations, or corrective actions in the event of a violation. Protect against: Fostering a toxic environment by neglecting or ineffectively handling violations and engaging in legal battles stemming from unaddressed or improperly handled violations.

Dissolution procedures

Establish clear conditions under which the partnership can be dissolved. Detail the process for asset liquidation and debt clearance upon dissolution. Protect against: Encountering legal issues and conflicts during dissolution due to vague or incomplete procedures. Financial losses due to an unstructured or hurried dissolution process.

Remember, these items provide a comprehensive guide, but every business is unique. Tailor your partnership agreement to your specific needs, considering all possible future scenarios, and always consult a legal expert to ensure its solidity and enforceability.

How is a partnership formed?

A partnership is typically formed through a partnership agreement, which lays out all the partners' terms, responsibilities, and profit-sharing. It isn't mandatory by law but is crucial to avoid future disputes. Key steps include deciding on a business name, registering the business, obtaining necessary licenses and permits, and crafting a comprehensive partnership agreement.

What are the main types of partnerships?

Primarily, there are three types of partnerships: general partnerships, limited partnerships, and limited liability partnerships, each differing in terms of liability and management structure. A business might choose a type based on its operational, financial, and legal needs and objectives.

Are partners personally liable for business debts and obligations?

In general partnerships, partners are usually personally liable for business debts and obligations. However, in limited and limited liability partnerships, partners can limit their liability to the amount they have invested in the business.

How are partnerships taxed?

Partnerships themselves are not subject to income tax. Instead, their profits are passed to the partners, who report the business income or loss on their personal tax returns. Each partner's share of profits and losses, usually outlined in the partnership agreement, is reported to the IRS on a Schedule K-1.

How does a partnership agreement protect the partners?

A partnership agreement provides a clear framework regarding each partner's contributions, profit and loss distribution, and rules for resolving disputes, adding or changing partners, and dissolving the partnership. It is a safeguard, providing solutions and predetermined courses of action for various scenarios.

What happens if a partner wants to leave the partnership?

Departure scenarios should ideally be addressed in the partnership agreement. Depending on the terms, the leaving partner may sell their share to the remaining partners, to an outside party, or trigger the dissolution of the partnership. The specific processes and implications may vary based on the agreed-upon terms and type of partnership.

Can partnerships be formed without a written agreement?

Yes, partnerships can technically be formed without a written agreement through verbal agreements or the actions of a business's operators. However, a written partnership agreement is crucial to avoid potential disputes and clearly understand all partners' roles, responsibilities, and profit-sharing.

How are decision-making powers typically shared in a partnership?

Decision-making powers are usually shared based on the terms set in the partnership agreement. This can range from equal power for all partners to specified authority areas for each individual. Clearly defined roles and responsibilities can help streamline decision-making processes and prevent conflicts.

How is profit typically shared in a partnership?

The partnership agreement generally determines profit-sharing in a partnership. It could be shared equally or in proportion to each partner's investment in the business. Without an agreement, profits are shared equally among partners despite the level of investment or effort put into the business.

These questions serve as a starting point, providing a foundational understanding of partnerships and their nuances. Always seek advice from a professional specializing in business structures and partnerships for specific advice and strategic guidance.

Choosing a partnership can be an excellent decision for many entrepreneurs. Each business type has unique pros and cons. Therefore, evaluate your needs, seek professional advice, and make an informed decision.

how to plan a business partnership

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Business Plan for Partnership Firm

A business plan for partnership firm is recommended for anyone entering into a business partnership. 3 min read updated on February 01, 2023

Updated November 2, 2020: 

A business plan for a partnership firm is recommended for anyone entering into a business partnership. A business partnership is two or more people working together to run a business. Each person takes on equal risks and rewards that come from the business. A proper business plan is ideal for handling current and future business decisions.

Steps For Planning a Business Partnership

  • Write a mission statement to clearly state the direction and goals the business plans to take. By writing a mission statement, the partners agree to the company's direction now and in the future.
  • Develop a reimbursement plan for the costs and investments incurred during startup. The amount of money provided for the startup is not always equal. Therefore, it is beneficial to make a plan that takes this into account with repayment and returns on investment. Avoiding arguments over the value of the startup amount versus levels of sweat equity will be removed with a reimbursement plan.
  • Create a method to resolve partner disputes. If an odd number of members are part of the partnership, you can choose to vote democratically. In the case of two partners, the partners may split areas of the business having the final say. For example, one person can make final decisions on marketing and sales planning, while the other person makes final decisions on financial planning.
  • Appoint an outside panel of advisors, or ombudsman , to resolve any internal disputes. Trusted experts should always be used to avoid ruining the partner relationship.
  • Divide all the responsibilities of the partners related to labor and management and assign the amount of compensation they will receive. The compensation is not always equal based on the workload the partner takes on.
  • Request that outside experts review the partnership agreement for any legal or accounting mistakes. The experts may be able to point out unknown problems that exist in the agreement. This review should take place before the partnership begins business operations.

Partnership Deed

A partnership deed and partnership agreement are the same, but the partnership deed is in writing . A partnership agreement can exist solely through verbal communications or actions. A partnership deed is recommended for businesses as it clearly defines the terms of the partnership.

The partnership deed helps prove the agreed-upon terms if there are any conflicts. Without a deed, the rules to settle disputes will fall to the state laws where the partnership exists. This creates another issue where one partner may file suit to benefit from the existing laws. Legal action can be avoided with a partnership deed that lists all details of the business that the partners agreed to when they began the business.

Partner Business Plans

When legal firms are looking to add a new partner, a well-written business plan that shows the new partners' intent to grow the business will make them stand out from the rest of the applicants. The business plan should exceed the expectations of the firm.

The key elements of the business plan are:

  • Create an introduction that details your professional history, areas of expertise, and why you are the right fit for the firm.
  • Provide market research and analysis of the needs of the local area, what competition exists, and why the firm offers the best way to reach this marketplace.
  • Describe your current client base, prospective clients, and untapped areas you'd like to reach.
  • Include any cross-selling opportunities that exist with current and prospective clients.
  • Share ways you can develop business sources including publications, speeches, client seminars, newsletters, and similar.
  • Explain your long-term strategy to meet the goals and targets that will benefit the firm.
  • Show a history of collections, billing rates, and billable hours and projections for the current year, three-years, and five-years.
  • Time the partners must invest.
  • Key staff will be needed (paralegals, secretaries, etc.)
  • Travel expenses.
  • Marketing materials,
  • Presentations.
  • Foreign language skill requirements.

End with a conclusion that is creative recaps the important points in the plan, what value will be added to the firm, and why you are the best fit for the firm.

If you need help with a business plan for a partnership firm, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.

Hire the top business lawyers and save up to 60% on legal fees

Content Approved by UpCounsel

  • Limited Partnership Rules: Everything You Need To Know
  • Purpose of Partnership: Everything You Need To Know
  • Authority of Partners in Partnership: What You Need to Know
  • Partnership Agreement Between Company and Individual
  • Limited Company Partnership Agreement
  • How to Make a Partnership Agreement Legally Binding?
  • Contract for Business Partners
  • Disadvantages of Partnership
  • General Partnership
  • Partnership and Company

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Running a small business with a partner can be both challenging and rewarding. It also has several advantages and disadvantages. Unfortunately, finding a reliable, trustworthy business partner isn’t easy, which is why so many entrepreneurs team up with their family or friends to start a business. On the surface, it may seem like partnering with someone you know is easier, but that’s not always the case. And, if you get it wrong, it can fracture a friendship, a marriage or a family relationship.

Advantages and Disadvantages of a Partnership

Starting a business with a partner is smart because when two or more people launch a company, they bring more knowledge and experience than a one-person company. And you’ll likely start with more funds, a deeper network, and more potential customers.

Of course, there are some disadvantages as well. For starters, you’re splitting the money—and the control. When you’re the sole company owner, you answer to yourself. But in a partnership, you are accountable to another person (or maybe more).

One quick tip before we dive in: Don’t name your business after you and your partner. It limits your expansion opportunities.

To make your business partnership work, follow these tips to prevent problems from taking root.

Choose a partner with complementary skills.

Don't look for someone "just like me" when seeking a business partner. Instead, the key to a good partnership is having a partner whose strengths counter your weaknesses and vice versa.

For example, if both you and your prospective partner are good at sales, who will be responsible for the other aspects of running a business? An introvert would do better to team up with an extrovert than with another shy person. If you're not good with details, it's best to team up with a detail-minded person.

Remember the expression, “the sum is the whole of its parts”? That’s what you’re aiming for—a better, more balanced whole.

Select a Partner with Similar Values

That said, it’s critical that you and your partner have similar values and work ethics. Don’t write the first word of a business plan until you know you share the same dreams, goals, and vision for your new business.

Make sure you’re both committed to full-time work and have the same end goal in mind. One partner who wants to build a legacy company to pass down to their kids, and another who envisions selling to the highest bidder as soon as possible, is a business disaster waiting to happen.

If you are going into business with someone you don’t know well, make sure to do your due diligence. If you can, talk to their former co-workers. Check out their social profiles—all of them, even if it doesn’t seem business relevant. Do an online search about them. Check with others in your industry.

It’s also a good idea to run a credit check on them. Tell them that you think they should check your credit as well.

Put It In Writing

Forming a partnership is a legal commitment, so it’s critical to clearly define each partner’s roles and responsibilities. Create a partnership agreement. Consider the following:

Some entrepreneurs who go into business with their family or friends don’t think they need to create a formal legal partnership agreement. That’s potentially dangerous. No matter whom you’re starting a business with, it’s a must to have legal documents drawn up.

  • Contributions and salaries : Is one person putting in more money than the other? That doesn’t mean they automatically will earn more; you may have to account for sweat equity or other factors. Or will earnings be split equally? Again, this needs to be defined upfront.
  • Titles and decision-making : Will there be one CEO or co-CEOS? Who gets the final say? Who will run the business daily? How will disagreements be resolved? Will you turn to a third-party mediator? Where do employees turn to get answers? Will one of the partners be more public-facing, or will those duties be shared? Do all partners have check- and contract-signing authority?
  • Growth : Can the partnership agreement be modified? Can new partners join? How will that affect all of the above?

Plan for What-Ifs

You need to figure out ahead of time what can go wrong and plan for every contingency . For instance, what if you’re in business with your spouse and you get divorced? Who gets custody of the company?

While it may seem premature, the steps for a potential breakup of the partnership should be addressed upfront in the partnership agreement. For example, what will happen to the business if one of the partners dies, retires, or decides to leave? Will the departing partner be required to first offer their shares to the remaining partner, will them to their family, or sell to an outsider?

Enlist the aid of an attorney to help you draw up a partnership agreement.

Select the Right Business Structure

You can organize a partnership as a general partnership, limited partnership, or limited liability partnership. Or you may choose to organize it as a C Corporation or S Corporation. Each form of business has its advantages and disadvantages regarding liability, taxes, and continuity. Talk to an attorney or other experienced advisor to help determine which form of business is right for you and your partner.

Many experts recommend incorporating your partnership to protect the partners from the company’s debts or other liabilities.

Choosing the best business formation can be complex, and it’s best to consult an accountant to ensure you’re selecting wisely.

Communicate

Perhaps the most important factor in maintaining a successful partnership is communication. You must feel free to address any issues with your partner. Just be sure to be sensitive to their point of view.

Here are some tips to keep the communication flowing:

  • Schedule regular meetings, face-to-face or via a video call. In addition to discussing business, talk about how you’re doing personally. It helps you feel invested in each other’s life.
  • Touch base often. In addition to meetings, touch base with your partner every day, even if it’s only a quick text or email check-in.
  • Listen carefully. If you disagree on an issue, don’t be defensive. Instead, listen to what your partner has to say, and then you can make a joint decision that’s in the company's best interest.
  • Don’t stay angry. If you can’t resolve an issue and anger erupts, don’t stay mad for more than a day. It’s just counter-productive. When you’re calmer, talk through the situation and resolve it.
  • Celebrate. Make sure to celebrate the successes and milestones—big and small.

Soft-pedaling your true feelings because you don’t want to hurt your business partner just causes problems. To make your partnership work, you not only have to feel comfortable with one another but trust each other implicitly.

Ignoring issues only leads to bitterness and resentment, which can destroy your partnership—and your business.

Hammering out all the details of your business partnership before you actually start may feel like you’re trying to diminish the joy and excitement of startup. But taking care of all the details now lets you lay a solid foundation for a lasting, successful business partnership.

This article is sponsored by  Lexmark GO Line . Learn more about small business resources at Lexmark’s the Spot .

Lexmark GO Line helps small businesses make a lasting impression on the world with intentionally engineered printers and all-in-ones. Combining over 30 years of experience and expertise, Lexmark is proud to offer enterprise-class and built-for-SMB devices and features to customers worldwide. With over 7 million printers deployed in more than 170 countries, Lexmark helps customers print, secure and manage documents with ease. Make your mark with Lexmark GO Line. Visit Lexmark’s the Spot for SMBs.

Grow Your Business with a Strategic Partnership Learn how a strategic partnership can help your small business develop a new product or service, gain exposure to a new target market, and much more.

5 Ways to Improve Communication Within Your Small Business When executed ineffectively, communications can lead to lost revenue, employee conflict, and a hostile work environment.

Copyright © 2023 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.

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Shouldering the sole responsibility of running a company is a daunting task. A business partner can relieve some of the day-to-day burdens and help guarantee the health and growth of your business. However, failing to follow proper procedures can result in chaos. Follow these guidelines to create a lasting partnership and avoid complications down the road.

Choose the right partner

Relinquishing complete control is a hard thing to do, especially when it comes to your business. Once you give up equity in your company, it’s hard to get it back, so choosing the right business partner is crucial.

Like all relationships, the ability to compromise is vital, but sharing the same fundamental values with your business partner will lessen the strain of those compromises. It takes time to cultivate a partnership and fall into a fine-tuned dance but picking someone based on optimal compatibility can get you in rhythm sooner.

When choosing a business partner, consider the following:

  • Trustworthiness: Do you have confidence in this person?
  • Attributes: What expertise and traits do they bring to the table?
  • Financial viability: Are they fiscally sound and able to contribute?
  • Strengths and weaknesses: Can their skills counter your shortcomings?

Prepare a detailed partnership agreement

Entering into a partnership is a complex process. A comprehensive contract between you and your partner provides a solid foundation for a successful collaboration. Even if you partner with a friend , executing a formal agreement offers both parties legal protection, dissolves ongoing disputes, and helps guide you when making crucial business decisions.

A good partnership outlines each person's contributions, expectations, and duties, dictates financial allocations, and instructs how you make decisions. The contract will settle minor disagreements that can turn volatile and end the partnership.

According to attorneys Fox and Moghul , "It's always better to come to terms with difficult issues before they happen than to strain to resolve them in the future." So, the more detailed the agreement is, the better. When conflict arises, anticipating problems and addressing solutions within the contract will be less stressful.

Before you partner up, you may need to acquire licenses and permits.

Select a partnership structure

The business structure you choose for your partnership will determine the amount of liability each party takes on and the tax benefits you'll receive. The benefits and disadvantages vary among entities, so check with an advisor to explore your options.

Consider the following structures:

  • General partnerships divide profits, liability, and management duties equally. They are easy to start, low-cost, and flexible, but you take on liability risk personal assets.
  • Limited partnerships allow one partner to have all the control and carry all liability and the other partner to have limited (if any) liability and control.
  • A limited liability partnership, or LLP, protects partners' personal assets and limits individual responsibility for the business's debts or other partners' actions.

[ Read more: How to Choose a Legal Entity for Your Startup ]

Comply with regulatory and tax requirements

As a member of a partnership, it’s your responsibility to comply with government regulations and manage business taxes. Laws and taxes may vary depending on the location and type of business conducted and how you structure your partnership.

Before you partner up, you may need to acquire licenses and permits. Most business partnerships must register with federal, state, and local agencies and obtain a tax and employer ID number. In addition, you may need other types of licenses and permits, including a business license, DBA license, sales tax permit, or industry-specific license. Check with your state and locality to confirm permit and licensing requirements.

Partnerships don't pay federal income tax. Instead, the company reports its gains and losses using informational IRS Form 1065 , then files and distributes Schedule K-1 to each partner. You will report any income, losses, deductions, and credits on your personal tax return using Schedule K-1.

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Top 10 Partnership Plan Templates with Examples and Samples

Top 10 Partnership Plan Templates with Examples and Samples

DivyanshuKumar Rai

author-user

When partners enter a business at the outset, they are motivated and excited to embark on this exciting new adventure together. Initially, they agree on almost everything. These new entrepreneurs think they will be in business together for the rest of their lives or until they sell the company for untold millions of dollars.

They believe that nothing can or will go wrong. They are so sure of each other that they never bother to get a written partnership plan. What could possibly go wrong in this scenario? The short answer is, "A LOT!"

The reality is that, despite dreams of longevity and unwavering trust, business owners' desires and expectations change over time. A written partnership plan can manage these expectations and give each partner confidence in the business's future. A written plan can serve as a safeguard that protects both the business venture and the investment of each partner.

Now, you might be thinking, “How to get an effective partnership plan in place?” The quick answer: Partnership Plan Templates .

Every business requires a partnership plan. Small businesses seek out partnerships more to achieve their goals and objectives. Building a strategic partnership is more complicated than creating a partnership document, but it is the first step toward action. SlideTeam’s partnership plan templates maneuver your ship to the shore.

Let’s explore these!

Template 1: Vendor Strategic Partnership Engagement Plan

Get this Strategic Partnership Plan PPT Template and deliver an impactful presentation to your audience. Its layout is divided into four sections, each describing a critical aspect: Plan, Analyze, Identify, and Act. There’s a specified section for review to ensure you have that extra cushion to make amendments, wherever necessary. Get this template now.

Vendor Strategic Partnership Engagement Plan PPT Template

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Template 2: Strategic Partnerships Event Planning Service Company Profile PPT Template

This PowerPoint Template works wonders when you want to explain the role of strategic partnerships within an organization. It has ample space to highlight points you want to deliver in your presentation. You can use its standard layout to emphasize key details, including partner location, services they monitor, objectives, and more. Download it now.

Strategic partnerships PPT Template

Template 3: Internal Communication Plan For Partnership Firm

The importance of proper communication in the successful accomplishment of business objectives can’t be overstated. With SlideTeam’s handpicked internal communication plan template, you can enjoy the convenience of an uninterrupted flow of information across departments in your company. This plan layout describes:

  • Reasons for communication
  • Communication activity
  • Communication channel
  • Individual responsible

Download now.

Internal Communication Plan for Partnership Firm PPT Template

Template 4: Marketing Campaign Initiated by Partnership Timeline

Build a weekly timeline for your marketing campaign using this fantastic PPT Template. Till the campaign goes live, you can include and track KPIs to ensure your effort is successful. Here, there are some predefined parameters that you can use: Target mapping exercises, Prepare brands and categories, Assign partner roles, risk register update, Negotiation and recruitment, and Activation and management. Download it now.

Marketing Campaign Initiated by Partnership Timeline PPT Template

Template 5: Global Partnership Management for Planning and Communication

Global partnership management is a painstaking task that can be made easy with our exemplary template. It has a unique framework that explains key insights encompassing the five stages, namely: Prepare, Share Knowledge, Plan, Execute, and Achieve Results. Being 100% editable, you can tweak the design and include points in this template to serve your purpose. Download it now.

Global Partnership Management for Planning and Communication PPT Template

Template 6: Six Months Teamwork Partnership Strategy Roadmap

Teamwork is the key to success! We know you would have heard this phrase at least a million times, but it doesn’t take away even a slight bit of truth. Build a six-month teamwork partnership framework using our exceptional PowerPoint Template. It highlights the team member and phases spread across a month-wise timeline. The phases include:

  • Develop partnership strategy
  • How the partnership will operate
  • Ensure stakeholder support
  • Resource allocation
  • Review the partnership development process

Six Months Teamwork Partnership Strategy Roadmap with Project Planning PPT Template

Template 7: Five-yearly Teamwork Partnership Strategy Roadmap

With a similar design to the previous template, this template accelerates the process of building a five-year teamwork partnership strategy roadmap. It has some predefined phases which you can change to suit your business requirements. You can present it to higher management to get their approval on the partnership roadmap you are long working on. Get it now.

Five Yearly Teamwork Partnership Strategy Roadmap with Project Planning PPT Template

Template 8: Planned Partnership Strategy PPT Template

If you need a pre-built framework for drafting a planned partnership strategy, this is the perfect piece for you. Its layout is designed into five stages that you can use to explain critical insights that underline your strategy. You can also use it to highlight KPIs as well. Get it now.

Analysis User Requirement Planned Partnership Strategy PPT Template

Template 9: Strategic Partnership Showing Teamwork

‘Strategic partnership’ is a complex subject that commands resources to spark clarity in your audience. Lucky for you, SlideTeam has prepared this template that touches every essential parameter that encompasses it. This template highlights the points of collaboration, teamwork, strategy, plan, performance, and success. It is a roadmap with checkpoints you need to surpass to foster better partnerships within your organization. Download it now.

Strategic Partnership Showing Collaboration Teamwork Plan & Strategy PPT Template

Template 10: Partnership Action Plan PPT Presentation

A partnership action plan boiled down into three stages! Hard to believe, isn’t it? SlideTeam presents a PPT Template that displays a layout that does just that. It has three levels: Action, Planning, and Partnership. The idea behind these stages is, you have to define relevant actions to ensure your organizational plans aren’t affected. Doing so will ensure there’s a more inclusive partnership forging in your company across departments. Get it now.

Partnership Action Plan PPT Presentation PPT Template

Partnerships are critical to the success of any business. Merchants and traders have used the principles of strategic partnership to conduct their businesses since the genesis of trade and commerce; the trend continues today.

A partnership can take many forms, from business owners working together to invest in a project to firms sharing technical knowledge and ideas. Whatever a company does, finding the right partnership plan template that benefits both parties is critical. (And that’s why SlideTeam has put together this list of top 10 partnership plan templates!)

FAQs on Partnership Plan

What is a partnership plan.

A partnership plan is a way two or more parties in a business agree on conducting the venture together. Each party takes different functions to perform, helping the business run more efficiently. This plan is documented in the form of an agreement. This document lays down the ground rules on how the partners will handle business responsibilities, ownership and investments, profits and losses, and company management.

While "partners" usually refers to two people, there is no limit to how many partners can form a business partnership in this context.

How do you create a partnership plan?

When forming a business partnership, it is critical to draft a partnership plan contract that outlines all of the terms and conditions of the professional relationship. Your business partnership plan should include a list of all partners and should address the following issues:

  • Name of the partnership
  • Partnership goals
  • Partnership duration
  • Contribution amounts of each partner (cash, property, services, future contributions)
  • Each partner ownership interest (assets)
  • Management roles and terms of authority of each partner
  • Accounting obligations
  • Distribution of profits and losses between the partners
  • Salaries, work hours, sick leaves, and vacation times of each partner
  • Permissions and restrictions on any outside business activity
  • Buyout options of partners
  • Process for adding new partners or removing original partners
  • Terms and conditions of termination of the partnership

What are the stages of partnership?

Here are the five stages of partnership:

Stage I. The Singles Stage (Non-Partnering)

Stage II. The Searching Stage (Pre-Partnering)

Stage III. The Courtship Stage (Active Partnering)

Stage IV. The Bonding Stage (Consolidated Partnering)

Stage V. The Commitment Stage (Going to Scale)

What are the 5 principles of partnership?

There are five basic tenets that work together to form a framework for establishing a solid foundation for effective business relationships.

  • Shared knowledge
  • Agreed Goals
  • Balance of return

While some of these are easier to quantify than others, each has a significant impact on the partnership's strength.

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Reddit strikes $60M deal allowing Google to train AI models on its posts, unveils IPO plans

FILE - This June 29, 2020 file photo shows the Reddit logo on a mobile device in New York. Reddit struck a deal with Google that allows the search giant to use posts from the online discussion site for training its artificial intelligence models and to improve products such as online search. (AP Photo/Tali Arbel, file)

FILE - This June 29, 2020 file photo shows the Reddit logo on a mobile device in New York. Reddit struck a deal with Google that allows the search giant to use posts from the online discussion site for training its artificial intelligence models and to improve products such as online search. (AP Photo/Tali Arbel, file)

FILE - A sign is shown on a Google building at their campus in Mountain View, Calif., on Sept. 24, 2019. Reddit struck a deal with Google that allows the search giant to use posts from the online discussion site for training its artificial intelligence models and to improve products such as online search. (AP Photo/Jeff Chiu, File)

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SAN FRANCISCO (AP) — Reddit has struck a deal with Google that allows the search giant to use posts from the online discussion site for training its artificial intelligence models and to improve services such as Google Search.

The arrangement, announced Thursday and valued at roughly $60 million, will also give Reddit access to Google AI models for improving its internal site search and other features. Reddit declined to comment or answer questions beyond its written statement about the deal .

Separately, the San Francisco-based company announced plans for its initial public offering Wednesday. In documents filed with the Securities and Exchange Commission , Reddit said it reported net income of $18.5 million — its first profit in two years — in the October-December quarter on revenue of $249.8 million. The company said it aims to list its shares on the New York Stock Exchange under the ticker symbol RDDT.

The Google deal is a big step for Reddit, which relies on volunteer moderators to run its sprawling array of freewheeling topic-based discussions. Those moderators have publicly protested earlier Reddit decisions, most recently blacking out much of the site for days when Reddit announced plans to start charging many third-party apps for access to its content.

FILE - Google logos are shown when searched on Google in New York, Sept. 11, 2023. Google said Thursday, Feb. 22, 2024, it’s temporarily stopping its Gemini artificial intelligence chatbot from generating images of people a day after apologizing for “inaccuracies” in historical depictions that it was creating.(AP Photo/Richard Drew, File)

The arrangement with Google doesn’t presage any sort of data-driven changes to how Reddit functions, according to an individual familiar with the matter. This person requested anonymity in order to speak freely during the SEC-enforced “quiet period” that precedes an IPO. Unlike social media sites such as TikTok, Facebook and YouTube, Reddit does not use algorithmic processes that try to guess what users will be most interested in seeing next. Instead, users simply search for the discussion forums they’re interested in and can then dive into ongoing conversations or start new ones.

The individual also noted that the agreement requires Google to comply with Reddit’s user terms and privacy policy, which also differ in some ways from other social media. For instance, when Reddit users delete their posts or other content, the site deletes it everywhere, with no ghostly remnants lingering in unexpected locations. Reddit partners such as Google are required to do likewise in order “to respect the choices that users make on Reddit,” the individual said.

The data-sharing arrangement is also highly significant for Google, which is hungry for access to human-written material it can use to train its AI models to improve their “understanding” of the world and thus their ability to provide relevant answers to questions in a conversational format.

Google praised Reddit in a news release , calling it a repository for “an incredible breadth of authentic, human conversations and experiences” and stressing that the search giant primarily aims “to make it even easier for people to benefit from that useful information.”

Google played down its interest in using Reddit data to train its AI systems, instead emphasizing how it will make it “even easier” for users to access Reddit information, such as product recommendations and travel advice, by funneling it through Google products.

It described this process as “more content-forward displays of Reddit information” that aim to benefit both Google’s tools and to make it easier for people to participate on Reddit.

how to plan a business partnership

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IR-2024-45, Feb. 21, 2024

WASHINGTON — During the busiest time of the tax filing season, the Internal Revenue Service kicked off its 2024 Tax Time Guide series to help remind taxpayers of key items they’ll need to file a 2023 tax return.

As part of its four-part, weekly Tax Time Guide series, the IRS continues to provide new and updated resources to help taxpayers file an accurate tax return. Taxpayers can count on IRS.gov for updated resources and tools along with a special free help page available around the clock. Taxpayers are also encouraged to read Publication 17, Your Federal Income Tax (For Individuals) for additional guidance.

Essentials to filing an accurate tax return

The deadline this tax season for filing Form 1040, U.S. Individual Income Tax Return , or 1040-SR, U.S. Tax Return for Seniors , is April 15, 2024. However, those who live in Maine or Massachusetts will have until April 17, 2024, to file due to official holidays observed in those states.

Taxpayers are advised to wait until they receive all their proper tax documents before filing their tax returns. Filing without all the necessary documents could lead to mistakes and potential delays.

It’s important for taxpayers to carefully review their documents for any inaccuracies or missing information. If any issues are found, taxpayers should contact the payer immediately to request a correction or confirm that the payer has their current mailing or email address on file.

Creating an IRS Online Account can provide taxpayers with secure access to information about their federal tax account, including payment history, tax records and other important information.

Having organized tax records can make the process of preparing a complete and accurate tax return easier and may also help taxpayers identify any overlooked deductions or credits .

Taxpayers who have an Individual Taxpayer Identification Number or ITIN may need to renew it if it has expired and is required for a U.S. federal tax return. If an expiring or expired ITIN is not renewed, the IRS can still accept the tax return, but it may result in processing delays or delays in credits owed.

Changes to credits and deductions for tax year 2023

Standard deduction amount increased. For 2023, the standard deduction amount has been increased for all filers. The amounts are:

  • Single or married filing separately — $13,850.
  • Head of household — $20,800.
  • Married filing jointly or qualifying surviving spouse — $27,700.

Additional child tax credit amount increased. The maximum additional child tax credit amount has increased to $1,600 for each qualifying child.

Child tax credit enhancements. Many changes to the Child tax credit (CTC) that had been implemented by the American Rescue Plan Act of 2021 have expired.

However, the IRS continues to closely monitor legislation being considered by Congress affecting the Child Tax Credit. The IRS reminds taxpayers eligible for the Child Tax Credit that they should not wait to file their 2023 tax return this filing season. If Congress changes the CTC guidelines, the IRS will automatically make adjustments for those who have already filed so no additional action will be needed by those eligible taxpayers.

Under current law, for tax year 2023, the following currently apply:

  • The enhanced credit allowed for qualifying children under age 6 and children under age 18 has expired. For 2023, the initial amount of the CTC is $2,000 for each qualifying child. The credit amount begins to phase out where AGI income exceeds $200,000 ($400,000 in the case of a joint return). The amount of the CTC that can be claimed as a refundable credit is limited as it was in 2020 except that the maximum ACTC amount for each qualifying child increased to $1,500.
  • The increased age allowance for a qualifying child has expired. A child must be under age 17 at the end of 2023 to be a qualifying child.

Changes to the Earned Income Tax Credit (EITC). The enhancements for taxpayers without a qualifying child implemented by the American Rescue Plan Act of 2021 will not apply for tax year 2023. To claim the EITC without a qualifying child in 2023, taxpayers must be at least age 25 but under age 65 at the end of 2023. If a taxpayer is married filing a joint return, one spouse must be at least age 25 but under age 65 at the end of 2023.

Taxpayers may find more information on Child tax credits in the Instructions for Schedule 8812 (Form 1040) .

New Clean Vehicle Credit. The credit for new qualified plug-in electric drive motor vehicles has changed. This credit is now known as the Clean Vehicle Credit. The maximum amount of the credit and some of the requirements to claim the credit have changed. The credit is reported on Form 8936, Qualified Plug-In Electric Drive Motor Vehicle Credit , and on Form 1040, Schedule 3.

More information on these and other credit and deduction changes for tax year 2023 may be found in the Publication 17, Your Federal Income Tax (For Individuals) , taxpayer guide.

1099-K reporting requirements have not changed for tax year 2023

Following feedback from taxpayers, tax professionals and payment processors, and to reduce taxpayer confusion, the IRS recently released Notice 2023-74 announcing a delay of the new $600 reporting threshold for tax year 2023 on Form 1099-K, Payment Card and Third-Party Network Transactions . The previous reporting thresholds will remain in place for 2023.

The IRS has published a fact sheet with further information to assist taxpayers concerning changes to 1099-K reporting requirements for tax year 2023.

Form 1099-K reporting requirements

Taxpayers who take direct payment by credit, debit or gift cards for selling goods or providing services by customers or clients should get a Form 1099-K from their payment processor or payment settlement entity no matter how many payments they got or how much they were for.

If they used a payment app or online marketplace and received over $20,000 from over 200 transactions,

the payment app or online marketplace is required to send a Form 1099-K. However, they can send a Form 1099-K with lower amounts. Whether or not the taxpayer receives a Form 1099-K, they must still report any income on their tax return.

What’s taxable? It’s the profit from these activities that’s taxable income. The Form 1099-K shows the gross or total amount of payments received. Taxpayers can use it and other records to figure out the actual taxes they owe on any profits. Remember that all income, no matter the amount, is taxable unless the tax law says it isn’t – even if taxpayers don’t get a Form 1099-K.

What’s not taxable? Taxpayers shouldn’t receive a Form 1099-K for personal payments, including money received as a gift and for repayment of shared expenses. That money isn’t taxable. To prevent getting an inaccurate Form 1099-K, note those payments as “personal,” if possible.

Good recordkeeping is key. Be sure to keep good records because it helps when it’s time to file a tax return. It’s a good idea to keep business and personal transactions separate to make it easier to figure out what a taxpayer owes.

For details on what to do if a taxpayer gets a Form 1099-K in error or the information on their form is incorrect, visit IRS.gov/1099k  or find frequently asked questions at Form 1099-K FAQs .

Direct File pilot program provides a new option this year for some

The IRS launched the Direct File pilot program during the 2024 tax season. The pilot will give eligible taxpayers an option to prepare and electronically file their 2023 tax returns, for free, directly with the IRS.

The Direct File pilot program will be offered to eligible taxpayers in 12 pilot states who have relatively simple tax returns reporting only certain types of income and claiming limited credits and deductions. The 12 states currently participating in the Direct File pilot program are Arizona, California, Florida, Massachusetts, Nevada, New Hampshire, New York, South Dakota, Tennessee, Texas, Washington state and Wyoming. Taxpayers can check their eligibility at directfile.irs.gov .

The Direct File pilot is currently in the internal testing phase and will be more widely available in mid-March. Taxpayers can get the latest news about the pilot at Direct File pilot news and sign up to be notified when Direct File is open to new users.

Finally, for comprehensive information on all these and other changes for tax year 2023, taxpayers and tax professionals are encouraged to read the Publication 17, Your Federal Income Tax (For Individuals) , taxpayer guide, as well as visit other topics of taxpayer interest on IRS.gov.

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EMyth Business Coaching

How to build a business partnership that works

Small Business Leadership Business Partnerships

6 min read

Managing a business partnership might be the only thing more difficult than managing a business. Partnerships are hard for the same reasons that any relationship is hard. It takes diligence and work to bring together personalities, communication styles and ideals. And without taking care to improve dysfunctional business relationships, you'll struggle to ever build a business that's not dependent on you.

So, if you want your partnership to serve your business—rather than hinder it—you need to strengthen the relationship upon which your partnership is built.

Download the EMyth Roadmap

But how do you do that?

As a business coach, I’ve worked with many partner-owned businesses, and improving the partnership has always been a crucial part of the process. There are three common types of partnerships:

  • Spousal partnerships
  • Business partners

The multi-generational family business

Each is complex for different reasons. But whatever the makeup of the partnership may be, the major root to all business issues is the same: a lack of alignment. If partners aren’t aligned, if they don’t share the same values and vision—which we call The Strategic Objective—or have the same goals for the company, and it prevents progress. In short, a lack of alignment gets in the way of growing the business.

Sure, it's easy enough to understand, but not as straightforward to resolve. Just like in a marriage or friendship, partnership needs a sincere commitment to good communication if it’s going to succeed. And that takes hard work, but the impact it will have on your business is worth it.

Here are my top tips for building better communication and creating alignment so you can make your business partnership work.

Define your independent roles

For some partnerships, the trouble begins here: You don’t even know where your job starts and your partner’s job ends. Each partner having their own role(s) and responsibilities is not only foundational to your day-to-day organization strategy, but also ensures that your partnership survives throughout your business journey.

So, define your job. You and your partner have different strengths; sit down together and write down those individual strengths, what you’re each good at—and not good at. And most importantly, decide who’s going to be in charge. Who’s the CEO? If one of you is passionate about the company’s strategic vision while the other prefers the high-level management of the business, the choice is obvious—defining the strategic vision will always be the CEO’s job.

I know this can be a sensitive decision. Passing the CEO role to a partner can feel like giving up stake in the business, and stepping into that role can feel like owning too much of it. But choosing one CEO is about bringing clarity to your partnership—and everyone that works for you. It doesn’t change your ownership of the business, just how you can best contribute to its growth.

free guide create your org chart

Stay in your lane

Once you have your role—stick to it and stay within its scope. Do your job, not your partner’s.

Sometimes this is easier said than done, especially if your business partner is also a family member or life partner, where you already have a strong relationship dynamic outside the business.

But for each of you to be effective in your role, you have to be committed to it. Sometimes that means creating rules for how you’ll work with your partner both at the office as well as outside of it. Be open and honest with each other about how hard it is to not interfere with your partner’s position. Create guidelines for how you can give each other feedback, and when and how you’ll check in on crucial decisions. If you can’t be open about the struggle with each other , you’re alone on an island. And that’s not conducive to growing your partnership—or your business.

Have a conflict resolution plan in advance

Conflict is inevitable, even in companies where the owners are completely aligned in vision. It can stem from deeper problems, but it can also come from simply caring a lot about the business. In fact, conflict can be good if you know how to address it constructively. It helps lead you toward innovation and growth.

But before you ever get to that point, you and your partner should talk about how you’re going to resolve conflicts. Imagine where conflict could happen before it happens, and create an action plan. If one of you is a talker and the other wants to get to the bottom line quickly, the potential for natural conflict is already there. Figure out a way to structure conversations that won’t end up with raised voices. For example, give the bottom-line partner the details they need first, then figure out where to add detail if the other partner wants to go deeper.

A father-son team I worked with had some deeply ingrained conflict that was a serious barrier to growing their business. They’d attack each other about daily priorities, which would stalemate their work for the day and completely hinder their progress. So we came up with a solution: Every single morning at 8:30am, the two would meet on the phone and ask each other these five questions:

  • Are there any expectations to follow up on from the last call?
  • What do need from me?
  • What do I need from you?
  • Is there anything we should talk about with key clients?
  • Are there any new frustrations in the business that need immediate attention?

Then they’d go off to focus on their own work. The results were incredible. Since they started this routine, they’ve never missed this meeting and the blow ups disappeared.

Healthy companies communicate well. That’s one of their greatest strengths. They deal with the same difficulties as other businesses, but they have the communication structures to help them get through.

Choose your decision-maker

Conflict resolution is a powerful tool, but sometimes, no matter how well you communicate, you can’t come to an agreement. So you need to also plan ahead for who will be the ultimate decider in situations like these. Why? Because in the moment when a big decision needs to be made, emotions are high, so there’s more room for conflict. It’s simpler, more effective and less emotional if there’s no question of who will make that decision.

In a two-person partnership, stakeholder decisions often fall to the CEO. But the more people in the partnership, the more complex the situation can become and the more defined you have to be.

Take for example a client of mine in Australia. This family real estate company had six partners—a couple and their four children—so there were a lot of personalities and dynamics to manage. The parents planned to retire, but knew they needed to decide which of their children would be the next CEO. They saw that if they didn’t decide, the children would fight amongst themselves and likely destroy the business. It wasn’t an easy choice for them, but it was a crucial choice for their business—and their family. And once they decided on the CEO, the other siblings accepted their new roles in the business and were able to work together with clarity.

Have a mediator to help with business conversations

In any relationship, it’s hard to be honest in the tough times (and sometimes even in the good times). But to have a strong partnership—one that can get through the highs and lows of developing your business—you need to be honest with each other all of the time . If this is already a challenge, get help. Bring in a mediator.

In my years as an EMyth Coach, I was that mediator for many partner clients. One such client was a father-son team with an established grocery store. The son was taking over the business, and he was so excited about it. But his dad was reticent to let it go, and undermined his son in a way that made him feel incapable and frustrated—like his dad didn’t really think he could succeed. The emotions were too high to let them look at the business objectively. As their intermediary, I met with them each alone, and then again together. It gave them both a chance to be honest without fear of being attacked, while also allowing me to help them see the situation with more objectivity. That objective perspective was what they needed to get past that emotional block.

Even great partners sometimes need help finding common ground and space to look at each other without judgement. They need to see that even though they’re very different people, they can come together on their shared vision for the company. A mediator facilitates finding alignment so you can grow your business.

To have alignment in your partnership, each partner needs clarity, a shared vision, and a set of rules for how they’ll relate to their role and to each other. But most of all, you need thoughtful and constructive communication. With that, aligning on how to build your business becomes not only simpler, it becomes possible .

Partnerships can improve through the coaching process. If you struggle as partners and would like to know more about how EMyth Coaching can help you better grow your business together, reach out to us .

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Written by Adam Traub

Adam Traub is a senior member of the EMyth Coaching Team and an expert in the EMyth Approach. In his nearly 20 years with the company, his experience has included program development, coach training, customer satisfaction and success, and personally coaching hundreds of business owners through the joys and challenges of redesigning their businesses. Adam’s dedication to helping business owners and leaders comes from his own interest in culture and people dynamics, as well as personal experience working through the EMyth Program as a client, where he saw the possibility for all leaders to transform their companies, create a better culture, and achieve their vision.

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How To Build A Partnership Business Plan

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Partnerships have been an integral part of many go-to-market strategies for decades. For some brands, they drive an enormous share of total sales. For others, they drive next to nothing. What separates successful programs from unsuccessful ones is often the focus emanating from a strong business plan. As with any other go-to-market approach, partnership requires analysis and planning to achieve maximum potential.

A partnership business plan can help companies understand the channel’s potential and the investments necessary to achieve those results. It also identifies the business partnership priorities that the team should focus on for maximum business impact. It’s different from a standard business plan in that you are not providing a rationale for an entire business but instead creating a roadmap for this critical business channel.

Setting appropriate expectations is even more critical than for other channels because of misconceptions many business leaders have about partnership. Many companies pursue partnership because they believe it will be a low/no-cost approach to driving sales. Somehow, goes this flawed thinking, the business partner will do most or all of the work of promoting the brand, and we can sit back and reap the benefits.

Certainly, one great rationale for the channel is strong ROI, but partnerships require resources and focus to succeed. A business plan can help clarify the business potential of the marketing strategy and the people, systems, and processes needed to achieve those results. This eGuide outlines the essentials for a strong partnership business plan and provides tips on how to deliver it. It provides insight as to what resources are needed to reach goals.

It is important to first set up the costs of setting up a program and the basic formula for customer acquisition.

The basic costs of a partner marketing program are:

Fixed costs:

  • Software to recruit, track and pay partners. This can also be a variable costs since some platforms charge a percentage of sale. But, most have a component that is a flat fee.
  • Service/headcount to recruit and manage partners. This can be an agency, an in house team or managed service from your tech platform. Sometimes agencies will work on a commission basis, but mostly this will be a relatively stable annual cost. Regardless, be aware that unlike programmatic, search or social, partnership marketing is still relationship driven and requires humans to connect. This takes time and it is facilitated by people who have relationships.

Variable costs:

  • Commissions paid to partners for a sale.
  • Any additional media costs including placement fees.

Note: be sure to build in a ramp up time for your partner program. Unlike search or social you can’t just “turn on” a partner program. You need time to recruit partners and activate these partners. There is a lot of blocking and tackling involved and you should not expect to see results overnight. The rule of thumb is six months until full activation, but that varies by industry.

Customer Acquisition Cost

Ultimately, the success of failure of a new marketing channel will be its ability to acquire customers at an equal or lower cost than other channels. Start by identifying your overall CAC so that you can determine if your partnership financial and operating plans will be effective.

​The basic formula is: {Fixed costs (like software, service, people) + (variable costs *volume)} / customers = CAC

Why Business Plans are Important

As partnership and affiliate play an increasingly important role in the total go-to-market for a brand, companies expect their leaders to offer a strong business case for additional investment. A solid partnership business plan will:

  • Help the company understand the business potential for partnerships
  • Enable business owners to understand and predict costs and benefits for proper resource and revenue planning
  • Provide straightforward ways to track progress toward achieving channel goals
  • Identify potential risks to achieving the goals and how to mitigate them
  • Establish a clear timeline of when a company can expect to achieve goals
  • Provide a complete picture so that the company can make an informed business decision on whether and how to invest in the partnerships channel

Beyond these tangible benefits, there is also the advantage of presenting and interpreting the opportunity in a context accessible to leaders within and beyond marketing.

Critical Components

Here’s a summary of critical elements for a partnership business plan and why they are important:

Executive Summary: This brief synopsis should highlight the key findings in the plan, from projected revenue and costs to the various advantages and risks of pursuing this line of business. Writing this part of your plan last is best after fully developing the other elements.

​Scope and Description: This section of the plan provides a high-level outline of the types of partnerships you recommend pursuing – not channel by channel but rather in the context of what characteristics must be present in a potential partnership to warrant pursuit. We’ll provide a list of thought-starter questions to help you keep this high level and strategic rather than too specific and tactical.

​Competitive Analysis: This section outlines how your key competitors leverage performance partnerships to build their businesses. Understanding competitive partnership activity contributes valuable learnings to your decisions about which partnerships to pursue.

Recommended Partnership Types: This section will enable you to list the types of partnerships you believe warrant pursuit, in priority order. The number of available partnership types is constantly expanding, so it makes sense to prioritize partnerships based on your revenue, profit, and brand equity goals. You should also consider what signals are available to ensure that potential partners are likely to consider working with you.

Operating Plan: Here is where you will outline the people, software, budget, and other resources required. You should also outline why your team is qualified and likely to succeed in building out the channel.

Financial Plan: Outline the costs and revenue expectations according to the approaches and timelines in use by your company. The level of granularity here really depends on how your company plans go-to-market initiatives and reports on performance.

Headwinds and Tailwinds: This section outlines the uncertainties that may help or hinder your ability to hit your targets.

Let’s consider each of these sections individually.

Executive Summary

Smart business opportunities can always be explained in a relatively small amount of words or “space.” Many companies require the rationale for an entire multi-million dollar business to be summarized in a single page. You can try to hit that target or give yourself two pages. But not more than that. Your ability to outline a business succinctly helps senior executives quickly understand why they should prioritize your initiative and demonstrates your ability to focus on what’s most important. Ask yourself:

  • How can I explain performance partnerships, the potential range of available opportunities, and why partnership represents an advantageous channel for business development?
  • What do senior executives need to know to understand the business potential of the partnerships channel?
  • What arguments and data are essential to evaluate this channel properly?
  • What topline data should I include to demonstrate the business value of pursuing the channel?

Providing hard numbers in your summary is critical if you are to gain buy-in from your leadership team. They must weigh any financial investment decision against the potential business value of other initiatives competing for resources. Make it easy for leaders to understand the enormous revenue and profit from partnerships. Use this channel’s massive ROI and ROAS to telegraph why your recommendation warrants commitment.

It can be tempting to try to write this section first. Don’t yield to that desire. By building out your other plan sections first, you will have ready access to the information for the executive summary.

Scope and Description

This critical section explains the range of partners and types of partnerships you recommend pursuing. Having articulated guard rails will help your team focus on the best opportunities and help prevent “swoop and poop” requests from outside leaders and teams.

Start by declaring your commitment to PERFORMANCE or OUTCOMES-BASED partnerships, and define this category clearly. From there, outline other criteria that will help guide your decisions on whether to pursue and accept specific partners and programs. Consider:

  • What sort of scale should a partner offer to warrant your time and attention?
  • What brand considerations should be taken into account?
  • What targeting considerations should be “musts”?
  • Are you willing to pursue temporary partners, or do you want to focus only on evergreen relationships, and why?

Competitive Analysis

Competitive analysis can be an invaluable aid in guiding partnership decisions. Including competitive analysis in your plan serves several purposes:

  • It helps establish the channel as a viable option for your business
  • It provides insight into the potential scale and most significant opportunity sectors
  • It can help you determine appropriate offers so you can build your sales and profit models
  • It provides urgency to senior management (FOMO)

Competitive information is an aid to judgment, not a predictor of your results. It helps establish a baseline from which you can develop plans to surpass competitive program performance.

Here are a series of questions to help you gather as much relevant data as possible quickly:

  • What sorts of offers are my competitors making in their affiliate programs? You can also get great insights into how your competitors manage programs on knoji.com. Most programs also have affiliate intake pages on their sites that can be found in site footers or with Google.
  • What can you learn about the business structure of your competitors? Use LinkedIn employee searches as a starting point here.
  • Visit the top cashback and coupon sites to see if your competitors are active there.
  • Use an SEO tool like SemRush, Moz, or Ahrefs to search for competitor backlinks.
  • Monitor their websites and social media to look for signs of partnerships and offer programs.
  • Subscribe to their marketing automation email programs (assuming your domain isn’t blocked. It usually won’t be.)
  • Is there evidence that they use influencers to deliver brand messages and drive direct sales? What are the terms under which they work with influencers? Often it is easy to find insights on your influencer platform tool or by doing Google searches for program pages.
  • Large partners can sometimes share publicly available info to help you structure successful programs.
  • Searching for “Brand Trademark + Deals” can often uncover search partners and other partners active in a brand’s programs.
  • Searching LinkedIn for partnership-related titles can give you a sense of the size and focus of a brand program.
  • Search the offer “malls” of credit card reward programs to see if your competitors have offers available there. Note that card-linked offers are generally confined to retailer brands, so that can simplify your search.

These and other strategies can help you understand the partnerships competitors are pursuing and the specifics of their commission offers.

Recommended Partnership Types

Explain the specific classes of partnership that you want to pursue. Some categories to consider include:

  • Traditional Affiliates (e.g., RMN, GSG)
  • Mainstream Publishers (e.g., Conde Nast)
  • Blogger Influencers (e.g., Pioneer Woman)
  • Social Influencers (e.g., Paul’s Hardware)
  • Fintech Partners (e.g., Venmo)
  • Card-Linked Offers (e.g., Cardlytics/CC Reward Programs)
  • BNPLs (e.g., Klarna)
  • Conversion Optimization Partners (e.g., RevLifter)
  • Travel Rewards Programs (e.g., United Mileage Plus)
  • Clubs and Associations (e.g., AARP Rewards)
  • Employee Benefits and Rewards Programs (e.g., Bucketlist)
  • Brand-to-Brand Partnerships (e.g., brands in related categories)

This is by no means an exhaustive list but does include many of the most popular partnership categories for consideration.

The right partners for your business depend on your brand, price point, buying cycle, compensation rate, and other factors unique to your category and market position. Further, your brand values and brand equity also play critical roles. For example, some brands are entirely opposed to offering discounts publicly, which might rule out certain traditional affiliates. Other brands might be a great fit for travel rewards programs. Still others might be ideal for influencer programs because many opinion leaders write about your category.

Naturally, some of these channels are more developed than others. Some market sizing data is available for the most developed categories like traditional affiliates. Others will have a dearth of information. But even in those categories that are less developed, you can put pen to paper to make some estimates of potential sales from a channel.

Creating an Operating Plan

Any business needs resources to enable its establishment and growth. A partnership business is no different. An operating plan outlines the people, investment, and other resources necessary to facilitate success.

When creating a partnership operating plan, it’s valuable to start your thinking with “hats, not heads.” Define the roles and associated responsibilities needed before thinking about the individuals who fill them. While extraordinary individuals have tremendous value in a business plan, starting with hats instead of heads ensures that the needs of the business dictate the organization, not the wants of specific individuals.

For a company to deliver scalable and repeatable results, you need to create an organization and operating principles that are not dependent on specific “superstar” individuals. Investors say that one of the most common mistakes businesses make is building an organization and planning dependent on “superhuman” individuals. Remember that your star players can power more success for a business plan – they are not the essence of that plan. If you struggle with this recommendation, consider this: would you base your entire partnership program on an individual partner?

From there, you need to think about the financial investment you need. Take the time to think through your needs. Many people rush through this stage and later find themselves strapped when forgotten expense types emerge. At the same time, recognize that a business plan is also an expression of the potential value that can be driven through the channel. “Sandbagging” may price you out of consideration. Similarly, delivering too rosy a picture can help you skate through the early stages only to be called on the carpet later when your projections prove inaccurate.

The operating plan development process should be one in which you choose what to do first and what can wait. Think through what the company wants from you. Do you need to be profitable by month three or year three? You want the aggressiveness of your recommendation to align with company goals and investment style.

You cannot do everything at once, or you will do everything poorly. Prioritize the opportunities and layout why you have chosen those priorities. Consider the law of threes. Accept that few organizations can do more than three big things simultaneously. “Big” is a subjective measure, and bigness varies based on that organization’s size and core competencies. Still, this concept helps guide people to a reasonable number of priorities for a period. Some would suggest that even three is too many. But surely we can all agree that more than three is a bad idea. Finally, it is often helpful to deliver multiple operating plans for different revenue projections/trajectories. Offer a low, medium, and high investment scenario to match the low, medium, and high revenue and profit projections you define in the next step.

After developing your “hats, not heads” plan, it’s perfectly valid to summarize the outstanding qualifications of those team members you have on hand to meet the business needs. Do so in the context of how they enhance your hat-defined org. That helps give your management team greater confidence in the wisdom of funding the initiative.

Creating a Financial Plan

The operating plan is a critical input for your financial plan. The financial plan is a projection of the revenue and profit from the channel. While, as you develop it, you will likely return to other elements of the business plan to adjust assumptions and figures, having baseline or ballpark figures for those elements of your program is crucial as you start to define the potential value of the business to your company.

There are many templates for building a financial plan available online. They are generally similar and often available without cost. They will require some adaptation to “fit” a partnership initiative, but they provide a good foundation.

Additionally, check with your CFO or company financial team to see if they have a model they believe in. This serves several purposes:

  • It aligns your effort to a format they are familiar with
  • It ensures that it is easy to understand your recommendations and compare your plan to other potential company investments
  • It demonstrates that you wish to partner with the financial team, which will be critical for your success.

If your financial team has a financial planning and analysis (“FP&A”) person, find out if you can ask for their help building your models. This will help you immeasurably and ensures that one of the critical evaluator/influencers is on your side later. Treat your company’s financial team as a potential investor because that’s what they are.

Identifying Headwinds and Tailwinds

It’s valuable to consider what macro changes could positively or negatively impact your success. Think both inside and outside the box in this area. Competitors, economic forces, and regulatory changes are three important considerations here, but there are likely others. Ask yourself:

  • What does an unsuccessful versus successful partnership look like?
  • What might affect customer receptivity to my products, services, and offers?
  • What might affect the willingness of the best partners to work with me?
  • What could positively or negatively affect the commission or payments I have to make per desired outcome?
  • What partnership agreement requirements could have a material impact on our success or liability?
  • What might limit the availability of data essential for measurement and optimization?

Once you have arrayed these potential challenges, you may be able to think of ways to reduce your exposure. Start by thinking about how intellectual property, speed to market, partnership exclusivity agreements, or other tools could help mitigate these threats. But whether or not you can think of ways to protect yourself from these risks, having identified these potential issues helps the business fully understand the opportunity you bring to them.

No sensible business leader will expect the partnership channel to be risk-free, but they will want to understand the scale and likelihood of the dangers. If your company cannot tolerate the potential problems associated with one or more of these key risk areas, better to know now than when it happens, and you have to explain the situation to the management team.

Conclusions

A partnership business plan’s format, breadth, and depth should align with how your company expects such recommendations to be made. In general, it’s valuable to have an executive summary presentation and a more in-depth document available, along with detailed spreadsheets that chronicle your establishment and growth expectations.

For some, doing all this work may feel like a waste of time. After all, aren’t the benefits of a robust business plan obvious? But the plan not only helps your company understand and assess the opportunity. It also ensures that you have thought through the way forward and can make more of the right decisions on days 1, 91, 366, etc. Planning is good. Prioritization is good.

Having a plan also helps an organization understand what they approve and what will be necessary to achieve a strong partnership revenue stream. As discussed earlier, many companies enter into partnership thinking it is a low effort, low-cost means of driving rapid growth. By setting appropriate expectations and outlining the tremendous revenue and profit potential, you set yourself up for maximum success.

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