7 advantages & 7 disadvantages of a business partnership

Ever thought about partnering with someone to start or run your business? For a lot of small-business owners, combining resources and expertise to run a company can prove to be quite valuable.

Teaming up with another party can mean more money to work with, more ideas and sharing the responsibilities of business ownership. This can make a huge difference in your company’s potential to operate and grow, but it can also come with drawbacks—like sharing liability with someone else and conflicting opinions on important decisions.

Keep reading to learn more about strategic business partnerships and whether partnering is the right move for you.

What you’ll learn:

• Strategic business partnerships can be a powerful catalyst for growth, helping you scale your business with access to expertise and skills you might not have. At the same time, the wrong partnership can hinder progress or introduce new challenges.

• Potential advantages of a business partnership include sharing resources and insights to help your organization thrive.

• Potential disadvantages may include challenges in dissolving the relationship on good terms if you decide it’s no longer serving your business’s needs.

Gaining a business partner usually means gaining access to their expertise, experience and distinctive competencies. A strategic business partnership should help your company by filling in the gaps in your own knowledge or skills.

For instance, maybe you’re excellent at moving products and inventory but struggle with maintaining accurate books or developing business goals and financial strategies. Partnering with a highly experienced professional in business accounting and financial management can help strengthen your financial recordkeeping and improve decision-making.

Operating a business by yourself typically means you’re responsible for all the financing, connections and resources your business needs. Creating a partnership may alleviate some of that stress by offering you access to important resources.

If your prospective business partner has strong financial standing, they may also be able to secure additional financing and improve cash flow for your business to support initiatives like business growth.

When making decisions for your business, two minds are often better than one. The intention of entering into a partnership is that decisions fall on all partners’ shoulders, not just yours. Having someone to help you flesh out ideas, brainstorm solutions, identify potential problems and see situations from different perspectives can strengthen business decisions and mitigate potential risks.

With the added support of a business partner, you’ll likely see a boost in efficiency and productivity that can save you time and money. Sharing tasks and responsibilities with them may also give you the freedom and flexibility to explore other business opportunities, such as:

• Researching the competition or ideas for business innovation

• Marketing your business to more investors

• Implementing creative rebranding

• Expanding your location or product line

Strong business partners often have a network of valuable industry and community contacts. And these contacts may help connect you with potential clients or offer preferred rates for their services. They can also help collaborate on community and publicity events or otherwise support your business.

Additionally, experienced or highly regarded business partners can help you grow your business and client base by expanding your brand’s reach through their own business outlets and connections.

A business partnership allows you to distribute responsibilities, which can reduce stress and prevent burnout. You won’t have to shoulder every challenge alone—your partner can help you manage daily operations, financial obligations and problem-solving.

Additionally, this shared responsibility can make taking calculated risks, such as investing in growth or new opportunities, a bit less daunting. Plus, if the business faces setbacks, sharing financial risk means the burden isn’t entirely on you.

If a partner needs to step away temporarily due to personal reasons, like illness or other obligations, a partnership can provide stability during these times of uncertainty. This can help ensure the business continues running smoothly. 

Similarly, a partner can bring long-term strategic vision and a complementary perspective, helping the business adapt to industry shifts and challenges while maintaining sustainable growth.

While the ability to share important business decisions with a partner has its benefits, it also limits some of the control you have. And it may lead to longer, more complex decision-making processes. When entering a business partnership, you should be prepared to compromise on some aspects of the business and operations. Compromise is often necessary to be a successful team.

In a business partnership, liabilities are usually a shared responsibility, including when it comes to finances. So you may be individually responsible for any business debts your partner can’t pay. For instance, if your business permanently closes due to financial stress and there is $50,000 in remaining debt, your partner may only be responsible for $20,000 based on their initial contribution. But if they can’t pay their share, you could be held personally responsible for the full $50,000. Creditors may even seize your personal property to recover the debt they are owed.

Business partnerships generally don’t pay income tax at the business level. All earnings and losses are “passed through” to the individual partners. Each partner reports their share of the business’s earnings and losses on their annual tax return, paying individual taxes on the business’s earnings accordingly.

Partnership earnings are subject to self-employment tax rates. And partners may end up paying more in taxes compared to other business structures. Profits must also be claimed and taxed in the year they are earned. Consult a tax professional for input on the benefits and drawbacks of different business structures. You can learn more about tax implications for business partnerships from the IRS.

Because money and livelihoods may be at stake, it’s not uncommon for disputes to arise among business partners. When considering a prospective partner, try to ensure they share your work ethic, vision and values before joining forces. It’s also important to look for someone who’s flexible, rational and skilled at communicating.

If you or your partner decides to sell their share of the business, problems may arise if everyone isn’t on the same page. And disputes could derail the sale of the business shares or lead to soured emotions between all parties.

Working exit strategies into a written business contract with your partner will help ensure a smooth transition if one partner wishes to leave the company. One example is a “right of first refusal” clause that allows you to buy your partner’s share of the business before they sell to someone else. This clause also helps to avoid third-party involvement in your company.

It’s advisable to consult a business attorney for guidance in crafting exit strategies and selling business shares.

Even in well-planned partnerships, there’s a risk that one partner may contribute more time, effort or resources than the other. If one person feels they are carrying an unfair share of the workload, resentment can build and strain the relationship. This imbalance can also negatively impact trust and collaboration, making it harder to build and maintain a positive and productive company culture.

It’s essential to set clear expectations from the start to prevent this. A well-drafted partnership agreement can outline each partner’s roles, responsibilities and expected contributions to ensure balance and accountability.

If your business grows or shifts direction, you may find that a partnership is no longer the best structure. However, transitioning to a different legal entity—such as a corporation or an LLC—can be complicated and may require new agreements, legal filings and consideration of potential tax implications.

At the same time, restructuring a business generally requires the consent of both partners—which can be a challenge if disagreements arise about the future direction of the business. This is why it’s wise to discuss potential long-term changes early on and include provisions for structural transitions in your partnership agreement.

Before entering a business partnership, evaluate the potential benefits and risks it offers your business—and you.

Keep in mind that teaming up with a skilled, well-connected and experienced professional with whom you collaborate well may help launch your business into a new era of success and growth. However, a less-than-ideal partner may do the opposite, leading to conflicts and increased risks for you personally, as well as your organization.

Capital One is ready to be your partner, offering business-grade benefits, best-in-class rewards and flexible spending tools to help you reach your goals. You can start with a business credit card from Capital One—check to see what you’re pre-approved for and find the best option for your business.