Partnerships is simply the coming together of two or more individuals to jointly invest money in a common enterprise.
Partnerships and group investing,partners,joint ventures,and syndicates.In the end,partnerships exist for one reason-so that the partners can accomplish together what they cannot accomplish individually.This synergy can be very important in providing you with a jump-start on attaining some ambitious business goals.
Despite the fact that organizing partners into a business partnerships offers important benefits.
The questions remains,”why use partners if you can accomplish your business objectives without them” The answer, of course,is that you shouldn’t.The reason not to use partners can be summed up in three words: “It’s a hassle.” In reality,however,there are times when the hassle is worthwhile because partners represent the only way to your particular business objective.
The Regulation of Partnerships.
Today,many limited partnerships and syndicates are regulated by state and federal securities laws, for the overall protection of the investors. If you keep your private partnership group very small and know each of your partners personally,you should have little trouble with regulations.While you may communicate with investors and prospective investors by telephone,email, or U.S.Mail,don’t use these mediums of interstate communication to solicit an investment.
Using Partnership capital
The purpose of forming a joint venture is to obtain capital to grow your business and have capital for the operation of your business.Debt financing and equity financing are two ways to use partnership capital.
When you use debt financing,you become indebted to the partners for the use of their capital. In this case,the capital comes to you in the form of a loan. Typically,the partners will receive a note as evidence of debt with a market interest rate on the loan. As a “sweetener,” you might even offer them a certain percentage of cash flow,for example,in addition to receiving 10% interest on the loan,they might receive 25% of all the cash flow from the business in excess of a certain amount.Alternatively,they might be entitled to 20% of any of the business appreciation.
With equity financing,the partners are paid for the use of their capital by means of equity in the business.In this case,you pay no interest for the capital,and the partners returns on their investments will be cash flow,equity build-up,tax benefits,and future appreciation. Most potential investors will prefer to own a portion of the equity if they have confidence in your management ability.The downside of equity financing is that you give up a portion of the ownership and control.
Establishing a Capital Reserve
When you form a partnership,you should always provide yourself with some insurance,so to speak,by establishing a financial reserve when you initially solicit capital contributions from partners. This extra money should be put into a bank account for the use in case of emergency.Although partners are frequently excited about investing in a new project, they are usually very reluctant to invest additional money should problems with the business develop. A reserve provides important protection in partnerships.