Running a business all by oneself is not often ideal in most cases. This is why some business owners have a partner. But what is a partner in business? Well, this is what you will find out in this article.
At the end of this article, you will understand the term “partner” in business.
You will also know the different types of business partners and the benefits and drawbacks of having a partner.
What’s more? You will also learn what to look for in a partner and how to build a strong business relationship with your business partner.
This means you will learn everything you need about business partners and having one in your organization from this article.
And the only way to learn all these is to read this article to the end.
Meaning of a Partner in Business – What is a Partner in Business
When two people engage in the same activity, a partner is one of those two.
This is the meaning of the word “partner”, according to the dictionary.
When it comes to business, this meaning also applies.
That is to say; a business partner is someone who teams up with another person to run a business.
However, that is a simple definition of what a partner in business means.
A business person would define a business partner as a member of a business partnership.
But this definition needs us to answer another important question; what is a business partnership?
Simply put, a business partnership is an entity wherein all members share the business’s losses and profits.
It is a business arrangement whereby two or sometimes more individuals run a company and share its losses and profits.
Business partners run a business with other parties and share the losses and profits.
Types of Partners – What is a Partner in Business
There are several types of partners in business, including:
General Partners
A general partner is a person who takes an active role in managing a company and shares both the profits and losses.
In other words, they are among the people who own and run the company, along with one or more partners.
The general partner is typically responsible for making major business decisions, such as new investments, hiring employees, etc.
They may also be involved in the business’s day-to-day operations, such as handling customer relations, overseeing finances, and managing employees.
One important thing to note about general partners is that they have unlimited personal liability for the debts and obligations of the business.
If the business runs into financial trouble and cannot pay its debts, the general partner’s assets may be at risk.
This differs from limited partners, who have unlimited liability and are only responsible for the money they have invested in the business.
Limited Partners
A limited partner is a person who invests money in a business but does not take an active role in the management of the company.
They are similar to a general partner in that they are part owners of the business, but they have some key differences.
Unlike a general partner, a limited partner is not involved in the company’s day-to-day operations.
They do not make major business decisions, manage employees or handle customer relations.
Instead, their role is primarily as an investor.
One of the most significant benefits of being a limited partner is that they have limited liability for the debts and obligations of the business.
This means the limited partner’s assets are not at risk if the business runs into financial trouble and cannot pay its debts.
Their losses are limited to the amount of money they have invested in the business.
Limited partners are not involved in business management and may not have as much say in running the company.
However, they may still have some rights, such as the right to receive periodic financial reports and vote on major decisions affecting the company.
Silent Partners
A silent partner is similar to a limited partner in that they invest money in a business.
However, they do not take an active role in its management.
Regardless of this similarity, there are still some key differences.
A silent partner is typically more involved in the business than a limited partner, but they do not participate in day-to-day operations or decision-making.
Instead, they may provide guidance or advice to the general partner based on their experience and expertise in a particular area.
Despite being more involved than a limited partner, a silent partner is still “silent”.
This is because they do not typically have a public presence in the business.
They may not be listed on the company’s website or business cards or be involved in marketing or promoting the business.
One important thing to note about silent partners is that they have limited liability for the debts and obligations of the business.
This means their assets are not at risk if the business runs into financial trouble.
Silent partners can be valuable resources for a business, as they can provide capital and expertise without taking an active role in management.
However, the general partner needs to communicate clearly with the silent partner about their expectations and responsibilities.
This is to avoid any misunderstandings or conflicts down the line.
Sleeping Partners – What Is a Partner in Business
A sleeping partner is a business partner who invests in a company but does not take any active role in its management or decision-making process.
In other words, they are entirely passive investors.
Unlike silent partners, who may provide guidance or advice to the general partner, sleeping partners have no involvement in the business.
They do not make any decisions or provide input on how the business should be run.
While sleeping partners do not contribute much in management or expertise, they can still be valuable sources of investment capital for a business.
However, they may not clearly understand the company’s performance or future plans because they are not involved in the business’s day-to-day operations.
General partner needs to communicate clearly with sleeping partners about any major decisions or factors that may affect their investment.
This can help ensure that everyone is on the same page and that there are no surprises down the line.
Sleeping partners are a relatively passive type of business partner, but they can still be an important source of funding for a business.
Joint Venture Partner
A joint venture partner is a type of business partner who works with another company to undertake a specific project or business venture.
The two companies share resources, expertise, and profits but remain legally and financially separate entities.
Joint ventures are often formed when two companies have complementary skills or resources that they can leverage together.
For example, one company may have expertise in manufacturing while the other has a strong sales and marketing team.
So, by working together, they can create a new product or service that neither company could have created alone.
In a joint venture, each partner typically contributes something of value to the venture, such as money, equipment, or intellectual property.
They also share in the risks and rewards of the venture, with profits and losses split according to an agreed-upon formula.
One of the advantages of a joint venture is that it allows both companies to benefit from each other’s strengths.
And they still maintain some level of independence.
However, joint ventures can also be complex and require careful planning and communication to ensure that both partners are on the same page.
Pros and Cons of Having a Business Partner
Having a business partner comes with its benefits but has certain drawbacks.
It would not be wise to go into a partnership without having a full picture of what it offers and what it could cost you.
This is why this section of this article will discuss some advantages and disadvantages of having a partner.
This way, whatever decision you make will be a well-informed one.
Pros of Having a Business Partner
The following are some major benefits of having a business partner.
More Hands-on Deck
Running a business is not child’s play.
There is usually a lot to be done.
This often results in late nights, always being busy, a truckload of decisions to make, and an unhealthy work-life balance.
A business partner or partners can reduce all these burdens.
Depending on the partner(s) you have, you will likely not have to carry out all the tasks of running a by yourself.
If you have a limited liability partner(s) or a general partner(s), they would also handle some aspects of the business and take some load off your hands.
The company’s tasks will be divided equally among partners.
This will allow every member of the partnership to have a healthy work-life balance.
Reduced Financial Burden
When you partner with someone to run a business, they will contribute financially.
This means you do not have to bear all the financial costs of running a business.
You and your partner(s) will share the business’s costs.
This alone can increase the business’s chance of growing rapidly because more than one person contributes.
Aside from this, you also won’t bear the business losses alone.
When you have a general partner(s), the business losses will be equally shared between the partners.
Additional Knowledge
No one knows everything.
Regardless of how savvy you are as a business person, you will always encounter situations that throw you off balance.
This is why business owners often have people they can turn to for advice.
However, with a partner, you can have an advisor and a partner in one person.
Most business owners often look out for partners who can complement them with the knowledge and skills they lack.
So when there is an issue, their partners can fill the gap whenever they are lacking.
Your partner can also have certain experiences to help your business grow faster.
They can proffer creative and innovative ideas and solutions that will take your business to the next level.
Cons Having a Business Partner
Here are some major drawbacks of having a partner
You are not Separate from your Business
One of the major disadvantages of having a partnership company is that you are legally not a separate entity from your business.
All partnership members are usually financially and legally bound to the business.
Therefore, you would not be seen as detached from the business if the business encountered any legal issues.
If the business owes any debt and cannot repay it, it will be deducted from your assets.
Reduced Control
Control over the company will be mutual among the partners.
This means that you cannot act on your own.
Before making a business decision, your business partner(s) needs to know about it.
This is because if the decision backfires, every member of the partnership will bear responsibility for it, especially in a general partnership.
You Will Have Disagreements
When two or more people work together, they may have some heated situations that can lead to disagreements and conflict.
Disagreements are almost inevitable regardless of how close you are to your partner.
You would have different ideas on how you think something should be done at different times.
And these disagreements can grow and become something much bigger.
The truth is, while disagreements are normal, you can always react to them better.
You can learn to control your reactions during heated arguments to ensure they do not escalate into something bigger.
However, while everyone wants to be able to work out things with their partners, it may not always work out.
You need an exit strategy if things get out of hand.
You Share Profits
If you operate a business all by yourself, whatever profit the business generates is usually all yours.
But if you have a business partner(s), you would share your business profits with the other partners.
Things to Look Out for in a Business Partner
If you want to take on a business partner, then the last thing you want to do is rush the process.
Choosing the best partner for your business can take a lot of effort and time.
You need to look for somebody who complements you and shares your values and vision.
This is why you need to take your time and look for the best qualities in whoever you choose as your business partner.
To make this easier for you, here are four vital qualities to look out for in a business partner.
Financial Stability
One of the best advantages of having a business partner is sharing the financial burden of running a business with some.
So, you would be doing yourself and your business a disservice if you partner with someone that isn’t financially stable.
You and your partner should have the financial capacity to share the business’s expenses equally.
Compatibility
Your partner should be someone you are compatible with, both business-wise and otherwise.
It won’t be all business between you and your business partner(s).
If the partnership works fine, you will have to form a strong relationship with them.
Aside from this, you also need to be sure you are compatible business-wise.
Partners should share similar goals, visions, and plans for the company.
Running the business together may be more challenging if they do not, as they will have opposing views.
To know if you are compatible with the person you are considering as a partner, you need to speak to them freely about their company’s core values.
Find their long-term and short-term vision, working styles, business goals, objectives, etc.
Also, share yours with them.
This way, both (or all) of you can decide if your entrepreneurial spirits align.
Trust
Trust is another necessary ingredient to look for in a partner.
They should be able to trust you, and you should also be able to trust them.
If a partnership lacks trust, there is a significant chance that such a partnership won’t survive.
Business Experience and Skills
Experience and skills are other important qualities a potential partner should have.
Now, when considering the experience and skills of a potential partner, it is better to get a partner with similar skill sets to you.
However, you should not choose someone with the same experience and skills as you.
You need someone who complements you and steps in to fill your weak areas.
For instance, if you are great at accounting but lack marketing knowledge, you need to get someone who knows more about marketing.
This way, you’d complement each other and make the business processes more efficient.
Tips on How to Build a Strong Relationship with Your Business Partner
The relationship between you and your business partner or partners often determines how long and efficient the partnership would be.
To have a successful partnership, you need to have a strong and healthy relationship with your partner(s).
One of the best ways to ensure a great relationship between business partners is to ensure proper communication.
Partners need time to talk to each other and ensure that everyone is up-to-date with every aspect of the business.
Now, communicating with your partner during the workday may not be possible because of how busy the day may be.
Therefore, partners should be able to communicate outside work hours.
Another thing that would aid the relationship between partners is appropriately delegating tasks.
Every partner should have a role to play in the running of the business.
And everyone should respect the role of other members of the partnership.
Having clear roles in the business will reduce the chances of disagreements and conflicts.
Finally, every partner should trust the judgment of each other.
This would also help reduce the chances of disagreement and conflicts between the partners.
Conclusion on What is a Partner in Business
At the end of it all, a business partner can go a long way in increasing a company’s growth.
You would enjoy certain benefits from having a partner but may also encounter drawbacks.
Luckily, if you get the right partner, you can easily avoid most of these drawbacks.
