Business partnerships can be structured in a number of different ways however the theme that runs through all partnerships is that a partnership is constructed with two or more individuals who own a business. The way business partnerships are structured is important, not only for an entrepreneur who is looking for a business partner to help make their dreams a reality, but also for the investor themselves. Without proper planning and thought an investor could open themselves up for more than they have bargained for, as in some cases additional liability for loses can rest with all partners, not just the entrepreneur.
In general partnerships all members of the business partnership share an equal role in how the business is run, therefore an investor who is looking to become a general partner typically is a person who is interested in the long term success of the business and wants to provide support and input into the running of the company. Entrepreneurs who attract this type of investor need to be clear in their mind that they are looking for a partner who will provide support and offer their opinion on how to run the company. Whilst profits are split equally between partners, liability for loses are also split between all parties, therefore It goes without saying that not all investors or entrepreneurs are interested in this form of partnership.
Business partnerships that have a ‘sleeping’ partner are partnerships where the investor partner has invested money into the company but offers no support or direction on how the company is run. Therefore sleeping partners main and only concern is making money from the business investment. For entrepreneurs this form of partnership obviously has many benefits as the way the company is run remains in control of the entrepreneur, however the downside for the investor at least is that they can still be liable for losses that the company runs up.
Limited Companies are perhaps a better way for entrepreneurs and investors to work together as ownership of the company and division of profits can be allocated in different ways and any loses that a limited company creates belongs to the company and not the owners. Limited Liability Partnerships (LLP) is another but somewhat complex way to construct a business partnership, however these should also be considered when going into business with another individual as this form of partnership arrangement has been constructed specifically with outside investors in mind.