How to Start a Partnership Business

After running a company with someone for a while, you might want to start a partnership. While this is a significant next step to reduce costs and grow your business, if you don’t plan well, it can lead to the company crashing and burning.

Businesses with several owners are more complex than those run by a single person, both from a legal standpoint and when it comes to the human factor.

If communication is lacking, partners can clash over any small detail of the proceedings. So, let’s take a look at how to start and sustain a thriving, beneficial partnership.

What is a Partnership?

Partnerships are business organizations with two or more people as owners. They’re governed by the laws of the state and registered in the country where it will do business. The partners share profits, losses, and decisions.

When it comes to taxes, the attorneys from explain that the partners get taxed on their tax returns, but not the business itself.

Benefits and Drawbacks

Forming a partnership is not a massive feat. All it requires is that two people decide to start a business. It doesn’t even ask for formation paperwork. Even beyond this point, they come with many benefits, financial and otherwise. Most prominently:

  • Partnerships are easy and cheap to start and maintain
  • This business is flexible, allowing partners to share and manage profits and losses how they see fit
  • Partnerships get to avoid corporate income taxes

On the other hand, there are drawbacks of this type of business, too:

  • Each partner suffers full liability for all financial obligations of the company
  • You can’t deduct employee benefits on your tax returns

If you’re familiar with the facts and have decided that a partnership is the right way to go, a planning stage ensues.


Before you decide on someone to become your business partner, be sure to check that person and establish a clear line of communication. A good friend doesn’t necessarily mean the right partner. The following checks are in order:

  • Credit checks – credit agencies will run a credit check of your potential partner.
  • Online presence – if the person tends to post what you wouldn’t want your clients to see, this is something that requires communication.
  • Do a personality test – while not quite a scientific method, personality tests such as MBTI will help you pinpoint possible interaction issues early on.

If the person seems like the right kind of partner, it’s time that you make decisions. 


In general, there are two main types of partners for a business:

  • General partners – in this case, you and your partner will share the workload, decisions, and liability for your company.
  • Limited partners – they will contribute to the business but make no day-to-day decisions.

Again, talking is the key to deciding how much responsibility the partner will take. Determine how the partners will get paid, too – they might get an ownership share or a salary. 


Now it’s time to decide how much profits the partner gets according to the contributions, type, and seniority. Remember, partners share losses the same way they do with earnings.

Useful Tips

Finally, some handy pieces of advice will ensure your startup blossoms.

Shared Values

Do not even start planning your business together before ensuring that you two share dreams, visions, and goals. The work ethic should also be alike for maximum success.

Complementary Skills

When you and your partner have the same skillsets, it doesn’t mean much. New skills boost the power of your team. Plus, you both get to do what you love in this case – so, define your talents and see where you overlap.

Track Record

You don’t necessarily need a history of running a business to make a successful partnership. What you do need is a track record of similar challenges handled with success.

Defined Roles and Responsibilities

In the long term, you’ll need formal organization and well-defined roles for each member. That way, it’ll be easier to eliminate disagreements.

Right Business Structure

As we mentioned, there are several ways to organize a partnership. Each form comes with sets of advantages and disadvantages, and going for the right one will make your business more successful long-term.

Legal Documents

Even if you’re creating a startup with your best friend, you’ll need legal documents to define parts of the company. Having it put in writing will facilitate conflict solving later.

The Bottom Line

It’s easy to start a partnership, but it’s also easy to get carried away and not protect yourself adequately. 

Choose a partner with care and make sure you have an official agreement. Get rid of any guesswork early in the life of your startup – it will save you from many headaches later.