A partnership is an association of people who carry on a business as partners and receive income jointly (ATO). The partners are all joint owners of a business and equally responsible for decisions made on behalf of the company. In other words, all profits, losses and responsibilities are equally shared, unless specified otherwise in a partnership agreement. One such example for an inventor looking to commercialise an innovative medical device, would be entering a partnership with a medical institution. This would foster medical device innovation and provide access to patients during the early stages of product development. At Inner Maven we can assist inventors to consider the pros and cons of embarking on a partnership.
Pros
- Ability to raise funds for the commercialisation process is enhanced, as multiple partners are able to contribute personal funds if necessary and borrowing capacity is increased. This is particularly helpful during the startup phase capital requirements are high.
- Partnerships allow people from different areas of expertise to pool together knowledge and experience to run a mutually beneficial business.
- Responsibilities and workload are shared amongst partners.
Cons
- Profits are shared between the partners and an agreement must be reached as to how funds are distributed fairly and equitably – this can sometime cause friction.
- Profits are shared between the partners and an agreement must be reached as to how funds are distributed fairly and equitably – this can sometime cause friction.
- There is unlimited liability. For partnerships with equal responsibility, partners are also equally responsible for the debts and obligations incurred by other partners, during the normal course of business.
- There is a potential for disputes in decision making, as different partners have different expectations and objectives for the business. Professional advisors or consultants can be valuable in this case to provide independent advice.
- Decision-making can be slow, as consensus needs to be reached between all partners. You do not have complete control over the business.