Why I Avoid Partnerships and Prefer Joint Ventures.

While simple to form, partnerships are a minefield for potential problems. They're often short-lived due to unrealized expectations and unforeseen occurrences like cash flow problems, partner disputes, a partner's death or other legal challenges.

While partners should have a written partnership agreement, they rarely do. A good formal partnership agreement outlines the duties, responsibilities and investment of each partner, as well as how and when profits and losses are distributed. It covers how debts are incurred and who is responsible for paying such debts in the event the business doesn't have the funds. Generally, all partners are legally liable for the debts of the business. A proper agreement spells out how the business would be dissolved. It also covers issues like personal bankruptcy or insolvency of a partner.

If you must have a partner, consider a Joint Venture. A Joint Venture is an association between one or more entities formed for a purpose such as economic gain. This association or alliance (it could be with an Individual, Proprietorship, Partnership, Limited Liability Company or even a Corporation) usually exists for the time that the economic opportunity is pursued, and is dissolved when the purpose is fulfilled. This is a great format when you need the strengths of another entity whose skills, talents, resources and experiences complement yours, but you don't want to include them in your own business.

Like a partnership, the Joint Venture can be quick to form, requiring an agreement on purpose, activities, investment, profit and loss splits and dissolution. While some Joint Ventures have a short term life, or life for single purpose, other Joint Ventures I've known have lasted many years, and some have resulted in successful mergers or acquisitions. I did a JV with another firm that resulted in their purchase of my company. One key reason that a Joint Venture works is that the entities forming the alliance retain ownership in their own businesses.

My final recommendation: Proceed v-e-r-y carefully with Partnerships or Joint Ventures, always use a written agreement, and whenever possible, evaluate whether a Joint Venture structure might fit better than a Partnership for your proposed venture.