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There are several types of partnerships in business that you need to know. Which is the most profitable for your business? Partnership is one of the most common ways to start a business.
Through partnerships, two or more parties can combine resources and expertise to achieve the same business goals. However, before starting a partnership, it is important to understand the types of partnerships available and their advantages and disadvantages.
The advantages of a partnership are increasing initial capital and business capabilities, expanding markets, and combining the expertise and experience of each partner. However, like other businesses, partnerships also have risks and weaknesses that need to be considered.
In this article, we will discuss in more depth the types of partnerships and their advantages and disadvantages.
What is partnership in a business?
According to Investopedia, a partnership is a form of partnership where two or more people share the responsibilities, profits and risks of running a business. Each partnership member usually has their own role and contribution in running the business. Including financial management, management, marketing, and so on.
Partners usually share profits and losses according to a previously agreed percentage of share ownership or contribution. However, in some types of partnerships, such as limited partnerships, only one or a few partners are responsible for business losses and the amount of liability is predetermined.
The advantage of a partnership is flexibility in decision making and business management. In addition, partnerships allow members to share risks and capital, as well as expand business networks.
However, the disadvantage of a partnership is that each member is fully responsible for the actions and decisions taken in the business, as well as sharing profits with other members.
How important is it to establish a partnership?
Having a business partner or partnership division is able to increase accountability. Business owners will feel more responsible to continue trying, in order to achieve success because they work together with partners with the same business goals.
Apart from that, there are several factors behind the existence of a partnership. The following is a list of reasons why business owners implement partnerships for their business.
- Organizations in business become active because partnerships can be directly involved,
- Encourage business strategies to run smoothly,
- Lowering the cost of paying professionals to grow the business,
- Creating solutions to answer the needs of business consumers,
- Extensive connections, and
- Partnership can help evaluate and provide advice regarding the business plan you want to carry out, so that the business vision and mission are achieved.
What is the importance of partnership to business?
Partnerships are important for business because they have several advantages, including:
- Expanding business networks: In a partnership, members can introduce each other's businesses to customers and other business partners, thereby expanding their business networks and gaining new opportunities.
- Expanding capital and resources: In a partnership, members can obtain additional capital and resources that can help the business develop more quickly and efficiently.
- Reduce risk: Each member can share risks with their partners, so that if a loss or failure occurs, not only one party is responsible.
- Optimizing skills and experience: All members can mutually optimize their skills and experience to maximize business performance and overcome the challenges they face.
- Flexibility in decision making: Each member can discuss and negotiate with each other to make the best decisions for the business, thereby allowing flexibility in decision making.
However, it is also important to remember that partnerships also have risks, such as difficulties in decision making, conflicts between partners, or incompatibility of business visions.
Therefore, choosing the right type of partnership and drafting a good partnership agreement is very important to ensure business success.
What are Types of Partnership?
There are several types of partnerships that are commonly found in the business world, here are the explanations.
1. General Partnership
A type of partnership in which all members have equal responsibility for all obligations and debts generated by the business.
They also share profits and losses proportionally. In a general partnership, each partner has the right to make decisions for the benefit of the business.
2. Limited Partnership
A type of partnership where there are at least two types of partners, namely general partners and limited partners.
The general partner has full responsibility for the business's obligations and debts, while the limited partner is only responsible for the capital invested in the business.
3. Limited Liability Partnership
A type of partnership in which each member has limited responsibility for the debts and obligations of the business.
This means that if the business experiences a loss or bankruptcy, each member is only responsible for a portion of the loss or bankruptcy.
4. Joint Ventures
This type of partnership occurs when two or more companies or individuals join forces to run a project or business with the aim of sharing risks, costs and profits.
In a joint venture, each party participates in decision making and shares profits proportionally according to the agreement.
5. Strategic Alliances
A type of partnership in which two or more companies join to develop new products or services, expand market share, or improve operational efficiency.
In a strategic alliance, each company remains independent and responsible for its own profits and losses.
How does partnership in a business work?
In general, how partnerships work has been explained in the discussion above. In essence, partnership programs can help businesses develop through the role of other parties who have specific capabilities.
For example, you recruit an HR business partner. Duties usually handled are resolving internal employee problems, providing information and advice regarding regulations related to legal risks.
As well as increasing employee productivity and collaborating with management. Apart from that, the types of partners in a partnership are divided into 2, namely:
General partners are partners who are involved in managing the company, including related to management and law.
Partners of different levels, namely partners who are differentiated based on levels such as junior and senior. Senior partners generally have greater responsibilities than novice partners.
What are the benefits of partnership working?
Establishing partnerships is something that is now done by beginners and senior business people. The goal is to achieve business success with the help of a third person who has the same vision and mission.
The advantage provided by the partnership program is that the business becomes better because it is done together, rather than done alone. This also has an impact on human resources, operational activities, and management.
According to the Tasmanian Government, here are the benefit of having a business partner.
- Obtain capital to develop business lines.
- Having back up or assistance when experiencing losses and legal problems.
- Reserve capital is available if you collaborate with many partners.
- Can get a loan not from a bank with minimal interest.
- Business profits will be divided according to portions.
- Can consult about ideas, plans and marketing strategies that you want to execute.
- Income tax is borne by each individual, not the business.
- There is an agreement regarding cooperation, so it is clearer.
- Flexible legal structure.
- The goal of success can be quickly achieved with many professionals involved.
What are the advantages and disadvantages of partnership?
Below are the advantages and disadvantages of each type of partnership, let's take a look!
1. General Partnership
The advantage of GP is that it is easy to set up and the costs are relatively cheaper. The parties involved also have the same rights and share profits and advantages fairly.
The drawback is that the possibility of conflict will be greater because all parties are fully responsible for debts and business obligations.
2. Limited Partnership
The advantage of this type of partnership is that the LP is only responsible for the capital. Meanwhile, the GP is fully responsible for decision making.
The downside is that only one party is responsible for all debts. The LP will also have difficulty selling its shares.
3. Limited Liability Partnership
The advantage is that each member has limited responsibility for business debts and obligations, and can participate in decision making.
The disadvantage is that the costs of setting up and operating an LLP are higher compared to a GP or LP. The process also tends to be more complicated.
4. Joint Ventures
The advantage of this type of partnership is that it can share risks, costs and profits with partners. Each member can also expand their market share.
The downside is that there is a high possibility of conflict between partners and difficulties in managing the decisions made.
5. Strategic Alliances
The advantage is being able to access new resources and technology, as well as taking advantage of the experience of each company partner.
The disadvantages are that it is difficult to regulate the decisions made by each member, and the risk of losing secret expertise or technology if one company leaves the alliance.
How do we build partnerships?
When building and looking for potential partners, consider many things. Remember, a business partner is a person who will be involved in your business. Both from a financial and management perspective, so make a selection to get the best candidate.
Based on ITS M Hub, the responsibility of business partners is to work together with management to create monthly or annual strategies.
Contribute as a team player, to ensure the business runs well and productively. Evaluate business proposals to review whether the proposed business and marketing strategy has a chance of being successful or not.
As a reference for establishing a good partnership, we have summarized a series of tips that can be applied.
- explain the type of business carried out by partners,
- make a clear MoU agreement, covering responsibilities, the amount of profits shared, and what is protected.
- choose a partner who is competent and has skills that you don't have,
- have the same values, vision and mission, as well
- dedicated to assigned responsibilities.
What is a real example of partnership?
Partnership is a form of cooperation between business owners and other parties. The main goal is to get capital and develop the business.
Examples of partnerships can also involve large businesses with other businesses. Like what PT Transjakarta does with various Bus POs to manage this mode of transportation.
Apart from that, an example of a partnership is a fast food franchise such as a coffee and contemporary food brand franchise which is owned by many business partners.
The characteristics of a business partner are:
- written cooperation,
- business structure is easy to form and clear,
- profits and losses are shared, and
- has a goal to advance the business.
What is a partnership in marketing?
One form of collaboration that is also common for businesses is marketing partnerships. The main objective of this partnership is to support promotional activities.
Examples of partnership marketing are affiliates, influencers, social campaigns, royalty programs, and sponsorships. This collaboration aims to increase sales in two different companies.
The way marketing partnerships work is almost the same as business partners, namely that they must have a clear agreement. However, here the form of collaboration can be cross-segment. For example, smartphone manufacturers establish partnerships with advertising services or internet providers. Or even contemporary food.
When to pay partners?
It's important to know that your partners are not the same as employees. Even though they are involved in operational and management activities, they are business owners.
This applies to general partnerships and limited partnerships. So, no monthly salary is given. However, business owners and partners can make an agreement regarding the distribution of business profits. That is a complete discussion about partnerships.
Conclusion
This is an explanation of the types of partnerships and their advantages and disadvantages for business. Through partnerships, business people can support each other to achieve their goals and generate maximum profits.
But of course, in running a partnership, there are several things that also need to be considered, for example having a partnership cooperation agreement contract. Yes, don't just rely on trust, then the partnership relationship is carried out only with a verbal agreement.
Therefore, contractual agreements can help us monitor and check whether the other party has carried out what has been promised or not, and can also be used as written evidence if there is a violation of the law. That is an explanation of the types of partnerships for business. Which one is most appropriate for your business?