Choosing a suitable business entity for a new company is something that every business owner must have gone through. Before they can choose the form, which works the best for them, they must do some research about the pros and cons of each or get assistance from a company secretarial service in Singapore. Among the different types of business entities, let us now have a look at the advantages and disadvantages of setting up a partnership.
The owners of partnerships can enjoy some of the benefits that this business entity brings them. From a legal perspective, the business affairs of all the partners remain private, and they need to follow fewer external regulation. Besides, if the business continues to grow, and the structure of a partnership can no longer cater for the demand, it is easier for the owners to alter the business structure.
People can set up partnerships easily with low start-up cost. As partnerships have several owners, it increases the number of inputs, and thus, the business will have more capital for its operation. This makes partnerships to have larger borrowing capacity than sole proprietorships. Apart from that, the partners may get some advantages from income splitting, and this may bring significant tax (Also see Do You Need a Tax Accountant?) savings for them.
Establishing a business in the form of a partnership also means that the owners will be able to work with each other so that they can create ideas that help to boost the efficiency of their business. Also, they can make skilful employees be their partner. This will enable them to come up with more amazing ideas and hence increase the revenue (Also see How to Differentiate Revenue and Income?) of the business.
Everything has their downsides, and partnerships are no exception. One of the most notable disadvantages is that if the partnership is not established as a limited liability partnership (LLP), the partners will have unlimited liability on the debts and other liabilities (Also see Equity and Liabilities) of the business. All the partners are entirely liable for the partnership’s debts, which means that they have to be responsible for paying the debts of their share.
Besides, in most cases, partnerships are tenuous in terms of interpersonal relationships as there will be a high risk of friction and disagreement between the management and the partners. The partnership (Also see How Can You End a Partnership?) will face some issues if the partners cannot collaborate well. Also, as every partner serves as one of the essential elements in a partnership, every one of them is liable to the decisions and actions that other partners have made or taken. In some occasions, the partners may have to suffer from the consequences of some mistakes made by other partners even though they have not made any mistake.