Thinking of finding a partner to buy a business with? There are lots of reasons to choose this option.
Partners can offer three forms of capital you need to succeed in your new business:
 | Intellectual capitalGreat partners often have knowledge, experiences, and skills that their counterparts don’t have. As a team, they have a solid understanding of what needs to happen in every part of their business. Plus, they excel at seeing those plans through. |
 | Financial capitalGreat partners have access to cash or ways to acquire funding. They have a good credit score (at least 650), which is a must for taking out term loans, asset-backed loans, or SBA loans to finance the acquisition, purchase inventory, or fund the business’s operations. |
 | Human capitalGreat partners are willing to put in the work that’s needed to make the business a success. Depending on the arrangement, partners may take a hands-on or hands-off approach. In either case, they’re willing to contribute when and how they’re needed. |
Should I find a partner to buy a business with?
Maybe. But before you decide, make sure you understand both the pros and cons of this setup.
Let’s start with the pros.
It’s always great to have more skills, knowledge, and support as you buy and run a business. There are benefits to having access to more financial capital, too. If you choose a partner who has cash on hand to invest in the business, you can avoid taking on costly loans or leveraging your assets, two options that introduce expense and risk.
Now, the cons.
Depending on your arrangement, you may not have the autonomy you want to make decisions and execute your ideas—at least, not without talking with your partner first. And while you and your partner will share in the costs, you’ll also share the profits.
If you decide to partner to buy a business, commit to finding a person (or people) with the traits your business needs to thrive.
What should I look for in a partner?
The partner you choose should have skills, experiences, connections, or resources that will benefit your business. You should be confident in that person’s abilities to team well and see through plans to achieve important goals.
You can partner with anyone you choose: friends, family members, colleagues, or others with valuable skills, resources, and experiences. Choose a person (or people) who will bring a clear advantage to the business.
How do I organize a partnership?
There are two ways to organize a partnership. There are many more ways to set up a business with multiple owners. Before making a call, check out your options. Here are some of the most popular setups:
General partnership |
| A general partnership is a co-ownership arrangement between two or more people. In it, both have legal and financial responsibility for the business.
How it’s formed:
What’s great about this setup:
The drawbacks:
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Limited partnership |
| A limited partnership is an arrangement that includes one or more general partners who have full legal and financial responsibility for the business and one or more partners whose liability is limited to the amount that they invest in the business.
How it’s formed:
What’s great about this setup:
The drawbacks:
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C Corporation |
| A C Corporation (C corp) is a legal structure for businesses with one or more owners. Through this structure, owners’ personal assets are typically shielded from the business’s debts and financial obligations. Businesses that use this structure have an elected board of directors, adopt bylaws, issue stock, hold shareholder meetings, file annual reports, and pay annual fees related to their formation. They are taxed separately from their owners, and the owners also pay tax on the income they receive from the business.
How it’s formed:
What’s great about this setup:
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S Corporation |
| An S Corporation (S corp) is a legal structure that shares many similarities with the C corp, but there are two key differences. First, a business organized as an S corp can issue only one class of stock to a limited number of U.S. resident shareholders (presently 100) rather than multiple classes of stock to an unlimited number of shareholders. Second, the S corp itself doesn’t pay tax. Instead, the owners report the business’s revenue as personal revenue.
How it’s formed:
What’s great about this setup:
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Limited liability company |
| A limited liability company (LLC) combines elements of a partnership and a corporation. Like a partnership, the LLC allows owners to avoid paying income taxes because they report the business’s profits and losses on their personal income tax returns. And, like a corporation, the LLC helps protect owners’ personal assets from the business’s debts and liabilities.
How it’s formed:
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If you decide on a partnership rather than a C corp or S corp arrangement, you’ll need to create a partnership agreement. An attorney can help you put one together. Here is what it might:
- The name of your business
- A brief description of its purpose
- The purpose of your partnership
- The duration of the partnership
- The kind and value of the assets each partner will invest
- How you will use to share profit and loss
- The compensation of each party
- How to divide the business’s tangible and intangible assets if the partnership dissolves
- Provisions for the dissolution of the partnership
- Provisions for buying and selling stakes in the business, which should include how the business will be valuated
- The conditions for admitting new partners
- The method by which the partners will settle disputes (often arbitration or mediation)
- How to make changes to the partnership agreement
General partnership agreements can include clauses that spell out each partner’s authority, responsibilities, and restrictions in engaging in outside business activities.
Limited partnership agreements can include unique clauses, too. Clauses may specify when each partner will receive reports and updates on the business; the conditions for returns; and how the general partner can buy out a limited partner.
Would you like to speak with an attorney about forming a partnership? Consider working with Contract Counsel. Check out their website here.
What are my other options for raising capital?
If sharing the ownership of a business doesn’t appeal to you—or if you’d like to consider it with other options—you might consider SBA loans, term loans, asset-backed financing, seller financing, 401(k) options, and lease-to-buy financing. You can learn more about these options here:
Looking for support through the process of buying a business? We can help. Log into your owner’s portal for a free step-by-step guide to make your venture a success.
