In today’s world, starting a business is certainly not an easy task. From ideation, funding to execution – all factors need to be carefully considered in order to ensure success. In this regard, choosing the right form of business structure plays a pivotal role. Partnership and joint ventures (JVs) are two popular business structures that entrepreneurs can consider. These two forms of businesses come with their own sets of advantages and disadvantages. Let’s dive into the pros and cons of partnership and joint ventures in business.
Partnership in Business:
- Easier and cheaper to set up: Unlike a corporation, forming a partnership is relatively easier and cost-effective. Specifically, there are no legal procedures that require the partnership’s conduct to be documented.
- Shared Resources: Partners bring different strengths, skills, and contacts to the table. Pooling resources makes it possible to launch and grow the business faster than if you tried to do it yourself.
- Flexibility: Partnerships provide additional flexibility when it comes to business management. For example, decisions can be made by consensus, and profits and losses are shared among partners according to previously decided percentages.
- Limited Liability: The unlimited personal liability clause of a partnership means partners are liable for financial obligations that arise in the business. They could be held responsible for the other partner’s mistakes and poor decisions.
- Personal Conflict: Differences of opinion between partners can lead to personal conflict that can affect the business. It can be challenging to work with one or more people if you have fundamental differences.
- No Limited Life: A partnership is not considered a legal entity, which means that it will expire as soon as a partner dies, retires, or withdraws from the business.
Joint Ventures in Business:
- Shared Risks: The risk of starting and operating a business can be daunting. Joint ventures share risks and resources, so you are not putting everything at stake.
- Access to new markets: Joint ventures often provide access to new markets, technologies, and customers that would otherwise be difficult to reach.
- Expertise: Partnerships allow access to specialized skills, knowledge, and resources, giving a strategic advantage in the market.
- Differences in Management Styles: The differences in the company’s management styles, culture, and expectations can pose a significant challenge. It is essential to align the goals and purposes early on in the process.
- Sharing of Control: Joint Ventures occur between two separate companies, and this brings ownership and control issues. Ensuring that both companies have an equal say in decision-making can be difficult, especially if the partners have different levels of experience or investment in the business venture.
- Legal Challenges: Joint ventures have complex legal structures, contracts, and provisions, which means that it can take more time and money to set up.
While both partnership and joint ventures have their benefits and drawbacks, the choice ultimately depends on the entrepreneur’s goals and objectives. It’s essential to weigh the pros and cons and consider factors like the size of the venture, the nature of the business, and the level of control and risk. In the end, understanding the advantages and disadvantages of these two models can help an entrepreneur in making an informed and effective decision, one that can lead the business to success.