What is the main disadvantage of a partnership?
Business partnership in small projects often begins with great enthusiasm and high aspirations, but with little planning and the absence of defining basic conditions and rules. Barely a period of time passes over the partnership, but many problems loom on the horizon that hasten the dissolution of this partnership.
A commercial partnership is entered into through a “partnership deed,” which is like a contract or agreement between the partners, and is related to a production, service, or commercial activity on fixed bases and joint ownership. The instrument contains the amount of capital that each partner must provide (initial cash), how the realized profits or losses are shared, the number of votes each partner gets (which is usually based on each partner’s share of the capital), and the conditions for the entry of partners. new or departed. There are other people called “limited partners”, whose primary goal is to invest in the partnership, and they are not directly involved in managing the company’s business, and their responsibility lies only within the limits of their investments.
Business partnership
We will first discuss the concept of partnership, its forms, and types of partners, then we will review the advantages and disadvantages of a business partner, passing through the good and bad reasons for entering into a partnership, and down to the foundations of a successful partnership and some tips to avoid falling into widespread business partnership problems:
1. Definition of Partnership
The concept of partnership according to the Saudi Companies Law is “a contract whereby two or more persons commit themselves to contribute to a project that aims for profit by providing a share of money or work, in order to share the profit or loss that may arise from the project.” The Egyptian Civil Code stipulates that “a company is a contract whereby two or more persons undertake to contribute to a financial project, each of them providing a share of money or work in order to share the profit or loss that may result from this project.”
1. Types of business partnership
There are four types of partnerships:
1. A partner with money only, and this is not called a partner, but rather a financier or investor
2. A partner by effort only, and this is not called a partner, but rather an employee or employee
3. A partner by knowledge only, and this is not called a partner, but rather a consultant
4. A partner in relationships only, and this is not called a partner, but rather a mediator
The partner must possess at least 3 of these four, and you also must possess at least 3 of these four, and one of you must be more knowledgeable in one or more of these fields than the second partner, provided that the other partner completes the deficiency that you have in one of them
For example, Muhammad has (knowledge of programming and can practice it, long experience in developing applications, and relationships he built over the years that can bring potential customers)
The right partner for Mohammed would be Khaled (has money for financing, good relations that can also bring new clients, and knowledge of management that he can practice)
Here there can be a successful partnership between Muhammad and Khalid
But in the event that Khaled (relationships only) and Muhammad (only programming talent), this means that there is a defect and deficiency and the two partners need someone to complete them, and in the end there will be a problem in this partnership, and this must be documented in the contract, so as not to Mohamed believes that Khaled will finance and also so that Khaled does not think that Mohamed will run the company because he will only do programming.
Who is the distinguished partner among the four then? As we agreed previously, the financier with money only is considered an investor, and he is the highest in obtaining a share of the company’s shares without the rest of the remaining three partnerships (effort, knowledge, relationships) except in one case only, if one of these four partnerships is very important and pivotal in the matter. Company formation and cannot be replaced or rented with money
For example, a person who has knowledge, which is a registered invention and cannot be imitated, or a person who has certain relationships that are necessary in order for the work to be managed and without these relationships the work cannot be completed, or a person who can do a certain effort that cannot be matched.
2. The three types of partners
There are many partners in business, and these are three main types of partners: an active partner who supports with money and is active in operations and supervising the workflow, while there is a silent partner who only provides financial support and stays away from practical effectiveness, while the third type of partners can be called Business partner, who is limited to the actual workflow but without contributing financial support.
Of course, the business partnership has advantages and disadvantages as well. Working with a partner may or may not benefit you and your business. And before you decide whether you will participate in your project with anyone or own and run your business yourself:
3. Advantages of business partnership
A business partner who may assist in a successful startup. It may allow you to share the workload and combine different skills. Also, the partner can enrich your business by having someone to rely on and share the effort and responsibility with. Here are the main advantages of the business partnership:
1. Workforce Synergy: When working with a business partner, you can get twice as much work done. A lot of work needs to be done to build a business. You’ll do marketing research, networking, project research and development, negotiating sales, and meeting with potential lenders or investors. All of this can overwhelm the business owner and drain his time. In the early stages of a new venture, you may not have the resources to hire staff to help you. Thus, you may need a partner you can trust to share the burden of starting a new business.
2. Diversity and multiplicity of skills: the business partner may bring a completely new skill that helps in completing the work with distinction. He might be a business partner with a background in engineering and research, while you excel in sales and communication. Various skills can be utilized to increase business success. Additionally, working with a business partner allows you to divide tasks according to each individual’s strengths, conserving time and eliminating duplication of efforts.
3. Different Perspectives: Business owners need an outside perspective that reinforces their ideas. You may think you have the best idea or solution to a problem, and easily invest capital in your business plans. Successful entrepreneurs have confidence in their ideas, but they may need someone else to set the record straight. Decision making becomes easier and more realistic when two or more people objectively evaluate ideas and share interest, feedback, and imperfect complement to those ideas.
4. Someone who motivates and questions: Some people may lose motivation when starting a business. They may have difficulty maintaining the necessary discipline and maintaining their enthusiasm. The partners motivate each other, and each of them holds the other accountable for any mistake and works together to fix it.
5. Someone to evaluate ideas: Business partners talk to each other about their ideas. Many entrepreneurs find it difficult to maintain objectivity when starting a new business idea. A business partner that helps you realistically and objectively evaluate new ideas and business plans, fix their flaws, and how to face potential challenges. Your business partner can also build on your ideas, providing more input to improve your plan, so you have a better chance of success.
6. Wide network of relationships: Networking is an essential aspect of business. Every time you meet someone, you have the chance to meet more people through that person’s network. You need many connections to succeed in business. Having a partner gives you the opportunity to expand the list of contacts, and multiply the potential numbers of clients, investors and suppliers.
4. Business partnership problems
Although a business partnership can offer you many advantages, choosing to work with a partner also has some downsides. A small business partnership is usually bad when one chooses the wrong partner, or chooses a partner for the wrong reasons. These are the main problems of the business partnership:
1. Conflict of work ethic
Many of those who choose partnership find themselves working with partners who do not share their passion and enthusiasm for work. Partners who cannot meet deadlines, follow up on clients, or, by not following through on their obligations, can cause bankruptcy of an existing business or a new business venture. Unscrupulous business partners can also contribute to the downfall of a business. Even if you think you know your partner beforehand, you may not realize his true identity until after you and his legitimate reputation have been damaged, your money has been stolen, or you have fallen into trouble.
2. Lack of Experience: Some business partners do not have the experience or skills to perform their mission successfully. When working with a business partner, you need to count on your partner to deliver results. Working with a business partner that can’t deliver results leads to many disasters down the road, including poor product design, angry customers, or potential lawsuits.
3. Disagreement over direction: Poor selection of a business partner causes major problems for any company. Sometimes, even if the partner is motivated, talented, and wonderful, he also causes problems. Business partners may disagree on the company’s long-term goals. They may spend weeks or months bickering over major decisions. Conflicts between partners may consume resources, cause stress to other employees or lead to inconsistent business practices.
4. Profit Sharing: When you have a business partner, the profits will be shared. Entrepreneurs happily distribute profits shares with partners when they bring added value to the company. If your partner doesn’t raise enough business to justify your participation, they shouldn’t get a share of the profits. If you make the same amount of money with and without a partner, you have chosen the wrong person to co-run your business.
5. Complex relationships: When a businessman shares a relationship with someone close to him, he endangers and harms his family relationship. Business partners often differ in views on the different aspects of managing the facility. Sometimes, these disagreements can lead to serious misunderstandings or disputes. Because of this, a bad partnership can destroy your relationship with a friend, spouse, or family member.
6. Responsibility for any wrongful actions of the partner: You are a partner responsible for everything that happens in your business. If a partner violates any laws, you may end up in court as well. This can result in a fine for violating government regulations, a lawsuit in the case of civil tort or if you are found liable for damages, you may face imprisonment if your partner commits a criminal act.
When you have a business partner, you go the extra mile to make sure you know everything your partner does. Even if you and your partner trust each other, you should monitor your partner’s work, to avoid neglect, abuse, or abuse. You must ensure that you both understand the applicable laws and set a clear policy of work ethics within the facility and adhere to it.
7. Your reputation is on the line: Even if a business partner doesn’t break the law, their actions may backfire and haunt you. A partner may do something dishonest, leading to widespread mistrust of your company. This may lead to permanent damage to your reputation. People are equal to you, your partner, and your project, which reflects negatively on the reputation of your business with any improper act of your partner.
Good and bad reasons for entering into a partnership
After considering the pros and cons of a business partnership, make sure you have the right reasons and motivations for choosing to work with a partner. Many people are looking for partners for many reasons, you must analyze the reasons for choosing to work with a business partner to ensure the success of your project.
1. Reasons for a good business partnership
1. You lack skill and experience in some key area (for example, marketing, communication, finance, or technical operations management). You need a business partner who has experience and skill in these key areas, to help enrich your business.
2. You work in a complex field that requires more work for more than one person to handle. Find a business partner who can fill in the gaps, but take your place up front to lead in front of employees or clients when needed.
3. You know a talented entrepreneur who can add value to your business. Share the business with someone who has proven a record of success, if you know them you can make full use of them and their talents.
4. You are a team player and work well as part of a team. Many people thrive in a team working environment. If this description fits an excellent candidate to become a team member, then, you have good reason to enter into a partnership.
2. Reasons for bad business partnership
Partnering for the wrong reasons can harm your business. These bad causes include:
1. You want a “yes-sayer” who agrees with all your decisions without arguing. Instead of working with a real partner, you want someone to tell you that they love your ideas and that they’re right all the time. This leads to narrow thinking, and will not provide you with the correct feedback you need to succeed in your business.
2. You may want someone to direct the work for you. You put your business in the hands of your partner, rather than taking a major leadership role. If you do not invest enough time in your work and follow it with interest, you may become at risk of what your partner does, or become a victim of his fraud.
3. Would like to go into business with a friend. Friendship should not play a role in choosing a trading partner. Instead, find a business partner who can help you enrich your business using their individual talents and skills as an addition to yours.
4. You want someone just like yourself standing next to you. You will not have diversity if you work with someone who thinks exactly the same as you. You do not need to have an adversarial relationship with your business partner, but your partner should argue with you if necessary from time to time.
You should determine what you really need from a business partner before you start looking for one. Once you have completed this first essential step, you can begin the process of choosing a business partner.
The foundations of a successful partnership
Before you decide to partner with someone, make sure that working with a partner will benefit you and benefit your project and add to it and not contribute to its failure.
First, ask yourself: Do I really need a business partner to build a successful company? Partnerships should be sought when having a partner is critical to the success of the business – when the potential partner has the financial resources, connections to support the business or vital skills that it may lack. It may be best to hire someone else as your staff or specialist.
If you have not worked with this partner before, test the partnership by collaborating on a small project together so that each of you knows the other’s skills and the ability to cooperate together. This is also a way to learn more about each other’s personality and core values.
Partners’ professional skills should complement but not overlap. For example, you may have the ability to see details while the other partner has the gift of seeing the bigger picture. You may be an expert in marketing and sales, while the other partner prefers to stay in the background dealing with financial matters.
It is preferable, after conducting the negotiation and defining the goals, expectations and ethical foundations, for each partner to sit with himself and study the issue from all aspects before the final agreement.
Use special caution when partnering with close friends or family members: Like many marriages, business partnerships can end in bitter breakups. You should consider whether you are willing to risk damage to your special relationship with them if the partnership falls apart.
Make partnerships with close friends or family the same as they would with strangers: thoughtful planning and preparing every aspect of the arrangement in advance so that there is an answer about how difficult situations will be handled if they are to arise. Attention to details in this case is an urgent necessity so that family relationships or friendships are not affected.
Develop a clear and precise partnership agreement: Once the decision has been made to start a business with the partner, a partnership agreement must be created with the help of a lawyer and an accountant. Take this step regardless of who the partner is. People who enjoy strong personal relationships are confident that their relationships are unbreakable as their relationships are supposed to help them overcome any obstacles along the way. Big mistake. A written agreement must be obtained and notarized.
A final word: A business partner can be your greatest or worst asset. Determining whether not to engage or engage in business with another person may be one of the most important business decisions an individual makes at any time. Identifying a business partner is just as important. Weigh the pros and cons of having a business partner, and carefully analyze the reasons why choosing a business partner can help you ensure that you find the right person to share your business with.
Once you’ve made a decision to find a business partner, take your time in making the decision, to make sure you find a business partner that truly fits your business and goals.