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The potential disadvantages of partnerships

On Behalf of | Mar 29, 2019 | Business and Commercial Litigation

Many people decide to enter partnerships because they believe that building a business with other talented people will lead to a successful endeavor. While partnerships can become very successful, they can have the potential to make the legal aspects of business become more complex.

It is, therefore, important that you fully assess the disadvantages of starting a partnership before you commit to creating a partnership agreement.

Partnerships can lead to unlimited liability exposure

If you set up a limited liability company (LLC), it will mean that you personally will be protected from liability if the business goes into debt. However, when a partnership is created, it generally means that the members of a partnership are exposed to unlimited liability. Many partners resolve this issue by creating a partnership of two corporations rather than between two individuals.

A partnership means that you will be somewhat dependent

Partnerships can create instability because the success of the business will be largely dependent on your business partner. The partnership will be automatically dissolved if a partner resigns, files for bankruptcy or quits.

The authority can be unclear

It is important that clear roles are established between partnerships because when they are not, roles of authority can be ambiguous. This can be especially problematic when there are only two partners because a vote cannot be held if there are disagreements.

If you are considering creating a partnership or if you are involved in a dispute with your business partner, it is important that you take a proactive approach toward understanding the law. Often issues can be easily resolved through the application of the law.