Starting and running a business requires large financial, physical and moral costs, and this process is also associated with numerous risks. This is why many businessmen are thinking about looking for business partners. This article discusses the essence of a business organized jointly, its pros and cons.
Theory
Any entrepreneur at the very beginning of his journey always needs funds, as well as additional help. Many novice entrepreneurs resort to the possibility of involving additional owners in their business, regardless of the idea of a joint business. Most often these are friends, relatives and other close people, but sometimes businessmen attract people from outside. This happens in cases where you need not just financial assistance, but experience and skills in a certain field.
pros
Among the advantages of a joint business are the division of labor and the combination of financial opportunities. Even in a small business, an entrepreneur has a lot of different problems and issues that need to be solved, sometimes there is not enough time and energy for everything, and you need a person who is as interested in developing the business as you are. An additional advantage is the skills and experience of a business partner, as well as fresh, non-standard ideas. In the Russian Federation, one of the important points that should be given special attention is connections. The appearance of a partner for joint business in your business will allow you to gain additional connections and acquaintances.
Minuses
At the very beginning of your entrepreneurial journey, most likely all your profits will be poured back into your business. At this stage, many businessmen feel that the business does not bring any benefit, and also that their partner works worse than himself and invests less effort, money and time. It is at the initial stage that a business most often falls apart.
The most important element in finding a business partner is the quality of the relationship. In half of the cases, the reason for the termination of a common business is the wrong choice of a partner. Many people select co-owners based on family or friendship. However, when it comes to money, it often turns out that friendships are not strong enough, and family relationships can be destroyed at the first dispute on any issue. A partner’s acumen and interest are no less important than trust, on the basis of which we make a choice in favor of relatives. If you have already decided that you need a partner for your business, you must determine the qualities that your future co-owner should have. Here it is important to take into account both character traits and knowledge, as well as possible material investments of the partner.
Separation of shares
In organizing a joint business, it is necessary to immediately indicate the partners’ shares in responsibilities, as well as in making a profit. These are very important issues to ensure that disagreements do not surface at a later date. To do this, you need to discuss them at the very initial stage. Most often, the business is divided in half. However, a business should always have a lead owner. In the case of a 50/50 division in the process of activity, disagreements may arise regarding the further path of development, which cannot be resolved, since each owner has the same rights to the given company.
Attachments
Anything always requires investment. When doing business with a partner, it is always important to clarify how much money each person is willing to invest. Otherwise, a situation may arise in which one of the partners invested much more than the other, and the profit is divided equally.
Where and how to find a partner?
You can search for a partner among your acquaintances and friends. Surely among your circle there are people with similar interests who will be interested in your idea and who are ready to support your endeavors. You can also find a suitable colleague at various forums and conferences, according to your field of activity. Today, a lot of business conferences are held, both online and in real time. At such meetings, various educational seminars and trainings are held, during which communication takes place between participants. The best thing about this option is that you can find a partner among more experienced participants, and perhaps even among teachers. In the age of information technology, it has become possible to search for colleagues via the Internet. Now there are many specialized portals for finding a partner for a joint business. Some entrepreneurs even find participants on message boards.
Organization
First of all, to organize a joint business, you and your future partner need to discuss all the main points and ideas for your business. It is very important that the understanding of your future enterprise coincides with that of your colleague. Otherwise, even if at the beginning of your journey your interests coincide, in the end they will still diverge. It is also important to consider whether you are creating a business from scratch or a business that is already ready and the second participant is simply buying out a share. The distribution of participation shares and responsibilities of each owner depends on this.
Form of organization
When creating a business, all entrepreneurs face a choice of the organizational form in which it will exist. When conducting joint activities, businessmen most often choose the form of individual entrepreneur or LLC.
The choice of individual entrepreneurs is due to the ease of registration, as well as accounting and taxation. But at the same time, the entire enterprise is documented in the name of one person, and the second is the unofficial owner. This option is not very practical, due to the fact that the second owner does not have any documentary rights to the business and is based only on complete trust. In the event of disagreements or any questions regarding the further development of the business, one partner has a great advantage over the second, and in the case of dishonest relations, he can simply “dump” the partner and take the entire business into sole ownership.
In the case of an LLC, the enterprise is formed with the participation of both partners, and their shares and rights are distributed according to their own agreement. This option is the most acceptable, since in this case the rights of both participants in the joint business are protected. Another advantage of organizing an LLC is a completely transparent financial system for any participant, which is especially important if there are more than two of them. The disadvantages of this form include the complexity of maintaining an accounting system and the complexity of its design.
Bottom line
In modern business it is quite difficult to survive alone. A competent and reliable partner who will take on some of the responsibilities and risks present in any field will help you not only save your business, but also give you an additional impetus for development. But you need to remember the basic tips for finding and organizing joint ventures, as well as the basic rules of business.
IP means “individual entrepreneur”. According to the legislation of the Russian Federation, an individual entrepreneur is an individual registered in the manner prescribed by law and carrying out entrepreneurial activities without forming a legal entity.
Entrepreneurial activity is considered to be an activity aimed at systematically generating profit. Thus, based on the meaning of the definition, we can say that IP cannot be opened for two.
An individual entrepreneur is an individual, that is, one person, and not a legal entity, not a team. What should two people who want to do business together do?
In Russia, there is an idea that registering and operating as an individual entrepreneur is easier and more profitable than creating a legal entity. However, this is not quite true. We will assume that “registering an individual entrepreneur for two” means joint business. In this case, there are several options for its design. Let's consider them sequentially.
Option 1. Register one of the participants as an individual entrepreneur
In this case, only one individual will undergo state registration as an individual entrepreneur. In this case, the second person can unofficially invest money and participate in business management.
Many entrepreneurs do this, believing that in this case they will be able to save significantly on taxes, accounting, using cash register equipment, having a bank account, etc. Whether such savings will really be profitable depends on many indicators - the activity of entrepreneurial activity, its types and other factors.
The more important issues, from the point of view of two people participating in a business, are not small savings and ease of registration, but guarantees of safety and financial responsibility of the participants. In the case of registration of one individual entrepreneur, the participant who is officially registered has all the rights to the business and in the event of a quarrel or the need for division, problems may arise. According to the law, the second participant does not have any rights to a share in the business and it will not be possible to prove his participation in it.
As practice shows, this way of doing business is chosen by relatives or close friends who trust each other and are not afraid that one of them will deceive their partner. However, anything can happen in life, even close relatives quarrel.
How to protect yourself in this case? The only option may be a loan agreement between partners, as individuals. That is, the contribution of an unregistered participant is confirmed documented as a loan to a registered participant.
Receipts must be kept. This will help you get your money back if the relationship goes bad. But even such loan agreements and receipts will not be able to fully compensate for the costs of organizing business activities incurred by an unregistered participant. It should also be remembered that a business participant registered as an individual entrepreneur also bears certain risks that will not affect an unregistered participant.
For example, if the business turns out to be unprofitable, the individual entrepreneur will pay debts within ALL your property, which will take into account real estate, car, etc. Such risks will not affect those who participated in the business unofficially. Thus, the described method of doing business for two can be risky and unprofitable for both parties, both the registered participant and the unofficial one.
Option 2. Both participants are registered as individual entrepreneurs and enter into a simple partnership agreement between themselves
A prerequisite is that both parties are individual entrepreneurs or commercial organizations. If a partnership is formed, both individual entrepreneurs determine the amount of contribution to the common cause, including property, business reputation, professional skills and knowledge, etc. The material assessment of the contribution of each participant is determined by agreement of the parties.
What are the benefits of such a combination:
- Both individual entrepreneurs are full participants in the joint business
- In case of termination of joint activities, each individual entrepreneur can act independently
- Profit from common affairs is distributed in proportion to the contribution
However, there is also minuses. Each individual entrepreneur will be required to keep separate records for independent activities and activities within the partnership. Reporting is also carried out in two areas of activity. Without going into the details of accounting and taxation, we note that such business management can create certain difficulties, especially for inexperienced entrepreneurs who are not yet familiar with all the intricacies of tax reporting.
Option 3. Formation of LLC
In many cases, registering an LLC will be the best option for running a joint business.
Firstly, only LLCs have the right to carry out certain types of activities (for example, selling alcohol).
Secondly, registering an LLC allows you to register in the constituent documents the share of each founder in the authorized capital and the distribution of profits between them, which means it will protect each participant from a legal point of view.
Thirdly, LLC participants bear responsibility on the company's obligations only within the limits of the share in the authorized capital. The procedure for registering an LLC is somewhat more complicated than registering an individual entrepreneur and includes the mandatory preparation of constituent documents and a decision on the creation of an LLC; it is also necessary to open a current account and make a seal. However, for participants in a joint business, such an organizational and legal form is still more attractive and safer.
Opening an LLC will not be much more expensive than registering an individual entrepreneur. And in an LLC you can save on taxes, on a bank account, and at the same time get a safer and more reputable organization.
Doing business as an individual entrepreneur is profitable only if the entrepreneur is truly “individual”, that is, he conducts his business independently at his own peril and risk.
As a conclusion
If you plan to run a business together, then you must initially properly formalize it and register it in the manner prescribed by law. This may require slightly more physical investment, but it will protect each participant in the event of an unforeseen situation, for example, a quarrel, a crisis, or a desire to close the business.
Business options described above each is good in its own way. A detailed description of the pros and cons of an individual partnership or LLC is not the topic of this article, but this information is also worth studying before deciding to organize your own business. In the case of an honest and fair initial organization of the business, it will be easier and calmer for each participant to work.
With partners? This question is perhaps the most important and, at the same time, the simplest. The most important for the simple reason that its future fate largely depends on the form of organization of the partner small business. Well, it’s simple because there isn’t much choice. But, nevertheless, many novice business partners make a mistake in the form of organizing their business.
Introduction.
The future will certainly have a question: in what form should I register my business? This question is important and the fate of the business being created depends on the correctness of its solution.
Let me remind you that there are several forms of registration and business organization. These are: IP - individual entrepreneurship, LTD or LLC - limited liability company. We will not consider other forms of business organization, because They usually have nothing to do with small businesses. So, what is better for an individual entrepreneur or an LLC. Within the framework of this article, I will not analyze all the advantages and disadvantages of forms of business organization. I will consider them only from the point of view of organizing a partnership business.
First of all, let's consider organizing a partnership business in the form of an individual entrepreneur. There are two partnership options in this case.
First option– registration of all IP documentation for one of the partners, and the other partner (or partners) are unofficial co-owners of this.
I want to say right away that I am not a supporter of such partnerships. Moreover, I consider this path unacceptable for real business. Although many young entrepreneurs are trying to follow this path. The perceived benefits of ease of registration, ease of reporting and the possibility of small tax cuts are very attractive to them. The disadvantages of this option are not immediately visible, but they are so significant that they many times outweigh all the visible benefits.
And the main drawback is the completely unjustified risks of the partners. Moreover, there are risks for everyone.
First of all, the partner for whom the individual entrepreneur is registered is at risk. It is he who will be responsible to government agencies if something goes wrong in business. It is he who will be the debtor of the tax authorities, suppliers, and creditors in the event of a business loss. Moreover, his liability is not limited to the property of the business, but also to his personal property. His personal car, personal property, and even an apartment may be confiscated to pay debts. Well, unregistered co-owners do not bear any responsibility to anyone, perhaps only to their own conscience.
But the unregistered partner(s) are also at risk. After all, only an officially registered partner has all rights to the business. And if partners quarrel or want to split the business, problems are inevitable. After all, the only legal owner of the business, and, naturally, the owner of everything that is in the business, is the first partner. And the second one has no rights and will not be able to prove his participation in the business.
Can an unregistered partner protect himself? Formally, it is possible to secure money invested in a business. It is necessary to draw up a loan agreement, according to which he lends money to the official owner of the individual entrepreneur. And in the event of a disagreement between partners, this agreement can help him return the amount invested in the common business. But he will not be able to return his part of what the business earns (if it is successful).
As you can see, the risks of all partners are quite high, and I strongly do not recommend using this method of partnership if you create a small business with partners.
Small business with partners in the form of individual entrepreneurs.
Second option– each of the partners formalizes their own individual entrepreneur and then they enter into a simple partnership agreement among themselves. This option significantly reduces the risks of partners and is quite widely used in practice. Its essence boils down to the fact that each partner registers his own individual entrepreneur. And then they create a single business by signing an agreement on joint activities. In this agreement, persons specify the rights and obligations of each partner. Details about the partnership agreement can be found in. This option is in many ways similar to the creation of an LLC by two or more partners, without opening a legal entity.
The advantages of this option seem obvious: each of the partners has an independent business; income and expenses are divided depending on the contribution of the parties; in the event of a division of the common business, everyone can remain an individual entrepreneur with their own share of the common business.
But there are also plenty of disadvantages in this option. After all, each partner must have its own reporting. And, in addition, it is necessary to maintain general reporting of the entire business. And in the case of, for example, the implementation of one project, all income and expenses for its implementation should, in proportion to the participation of each, be divided between the partners. This is quite difficult to do with different shares of partners. A significant drawback is that each of the partners can very easily leave such a business. Just leave with your share and the equipment registered to his individual entrepreneur. And this could lead to the closure of the entire business.
These shortcomings are so significant that I believe that such a small business with partners is not entirely justified.
Partnership business in the form of LLC.
I consider the most acceptable option to create a small business with partners to form an LLC. In many cases, this may be the only correct option. The very organizational essence of the LLC provides for the elimination of many problems for partners.
Firstly, registering an LLC allows you to register in the constituent documents the main parameters of the relationship between the co-owners: the share of each partner in the common business, the distribution of profits between them.
Secondly, the organization of an LLC provides legal protection of the rights of each co-owner.
Third, partners in an LLC are proportionately responsible for everything that happens in their business. But, with rare exceptions, they are not liable for their personal property.
Fourthly, all LLC activities, including financial ones, are completely transparent to all partners, and each of them can monitor the state of the business at any time.
Fifth, none of the partners can simply leave the LLC. There are legitimate legal procedures for this. This gives time to the partners remaining in the business to make informed decisions to continue the business and, if necessary, to “patch holes” in the business.
Sixth, it is much easier for an LLC to enter into partnership agreements with other companies, especially large ones, than with a business organized through a simple partnership agreement.
Seventh, the LLC must pass all cash flows through a bank account. This disciplines the financial activities of partners and its transparency. Disciplines the activities of partners and the need to print on most LLC documents.
Eighth, running an LLC may be more economically profitable than using a business created through a simple partnership agreement for partnership. Especially if there are more than two partners. After all, every individual entrepreneur must have an accountant, but in an LLC there will be only one. Other organizational duplications will also be eliminated.
The only disadvantages of running a small business with partners through an LLC are the more complex and costly registration and closure of the business.
Many people believe that running an LLC is more expensive. But even in an LLC, with proper management of financial activities, you can significantly save on taxes, and on maintaining bank accounts, and on other expenses.
Conclusion.
As is easy to see from the above, a small business with partners, in my opinion, is best organized by creating an LLC. But we must not forget that simply organizing an LLC will not solve all the issues that arise when doing business together. Only a well-drafted agreement between partners, in addition to registration documents, will avoid many problems in the future.
Many aspiring entrepreneurs who are on friendly terms have a desire to join forces to organize a common business. The following options for running a joint business are possible:
- Registration of one individual as an individual entrepreneur.
- Conclusion of a simple partnership agreement between individual entrepreneurs.
- Education LLC.
IP is a concept that stands for individual entrepreneur. This is one of the most common organizational and legal forms for modern Russian entrepreneurs who want to run their own business.
An individual entrepreneur can be called an individual who decides to conduct independent business activities at his own peril and risk in order to make a profit. Based on the definition of the concept, an individual entrepreneur cannot be opened for two.
Any capable citizen who is over 18 years old can become an individual entrepreneur in the Russian Federation. Obtaining individual entrepreneur status has its advantages compared to forming an LLC. Here are some of them:
- No property tax;
- Fast and easy registration;
- Free circulation of funds;
- A simple decision-making process that does not require meetings;
- Ease of liquidation and taxation.
An individual entrepreneur can engage in any type of activity, except for a licensed one.
Options for joint activities of individual entrepreneurs
Businessmen ignorant of legal subtleties believe that the legal form of individual entrepreneurs is not suitable for joint business activities. But options are possible. If two people want to merge their business in an individual entrepreneur format, they will need to conclude a simple partnership agreement or create an LLC.
Some get out of the situation by registering an individual entrepreneur for one person. At the same time, the second one can invest in the development of a common cause in financial terms. This scenario is possible only with complete mutual trust of the participants. It is suitable for close relatives or friends, but even here quarrels and stumbling blocks can arise.
This scenario assumes that only one individual will be able to register as an individual entrepreneur and become the owner of his own business. Participation in the management of affairs on the part of the second individual will be unofficial. This means that he can contribute funds to the common capital and perform an advisory function.
Entrepreneurs consider this option of joint business to be the most acceptable of all. But few people want to be an unofficial “money bag” who, in the event of conflicts, has no rights to the business and the profits coming from it.
Registration of one individual as an individual entrepreneur will greatly reduce spending on taxes and the use of cash register equipment. Accounting can be carried out according to a simplified scheme. But actually receiving benefits from such joint business activities highly depends on the activity of the entrepreneur and the types of activities.
Problems may arise if you want to divide an enterprise or firm. It turns out that only one person is the full owner of the business, and the second legally has nothing to do with it. It will be difficult to prove that you are right.
Both parties must protect themselves from legal problems that may arise in the future. Experts recommend concluding a loan agreement between partners. The unofficial contribution of an individual will be documented in the form of a loan. It turns out that one businessman provided another with a loan against signature. In case of disagreement, the loan agreement will be an official confirmation of participation in general business activities.
All receipts must be kept, just like a written agreement. But even the preparation of such documents will not be able to fully compensate for the damage to a person who is not an individual entrepreneur. The conclusion is that registering one person as an individual entrepreneur can entail real losses for his partner.
But everything turns out to be not so rosy for an individual who has all the rights to conduct business. The overall business may turn out to be extremely unprofitable; a businessman may fall into serious debt to creditors. And the unofficial participant does not risk anything. Conclusion: this form of running a joint business may or may not be beneficial for both participants in the process. When making a decision, you need to take into account all the pros and cons of cooperation from your position.
Simple partnership agreement
The above solution to the issue may not suit both parties. If both persons wish to register as individual entrepreneurs, events may develop according to a different scenario.
The Civil Code of the Russian Federation provides for the possibility of concluding a simple partnership agreement between two individual entrepreneurs.
This joint venture agreement does not require the formation of a legal entity for joint activities of two individual entrepreneurs or commercial organizations.
The result of signing the agreement will be the formation of a partnership. As for the financial and intellectual contribution to the common cause, its size is determined by businessmen by mutual agreement.
This option seems ideal only at first glance. It has obvious shortcomings. Inexperienced people who are not familiar with the nuances of accounting may have problems in this area and when solving tax issues.
But there are also positive aspects. If entrepreneurs want to terminate the agreement, they will be able to exist in the form of separate individual entrepreneurs and conduct their activities. Distribution of profits does not infringe on the rights of partners. They receive funds depending on the size of individual investments in the common cause. The benefit also lies in the fact that both co-owners of the business have absolutely equal rights to it.
Conclusion: concluding a simple partnership agreement is the best option for joint business if businessmen have experience in accounting and taxation.
Another option for conducting joint business activities is the formation of a limited liability company.
LLC stands for a company in which several persons are involved in the formation. In this case, the authorized capital may be divided into parts. The size of shares must be determined by the constituent documents. Unlike other commercial companies, a limited liability company has the following features:
- Members of the association bear general responsibility for their investments;
- An LLC can be founded by legal entities and individuals;
- The formation of the authorized capital comes from investments of LLC participants.
The number of participants in a limited liability company cannot exceed fifty people. Only an LLC has the right to conduct certain activities, for example, to sell alcoholic beverages.
Each LLC participant can protect themselves from a legal point of view, since the constituent documents specify the shares of each entrepreneur. You will have to bear responsibility for the obligations of the community only within the limits of shares of the authorized capital. This is another positive aspect of organizing a limited liability company.
Unlike registering an individual entrepreneur, forming an LLC takes more time and is considered a more complex procedure. It will be necessary to compile special constituent documents, produce a company seal and open a current account.
But, despite certain difficulties in the registration process, this form of organizational and legal activity is preferable.
Some businessmen believe that forming an LLC is a more expensive option than registering an individual entrepreneur. But this is a misconception. You can also save on paying taxes by organizing a limited liability company.
Conducting joint activities of two or more private entrepreneurs must be properly formalized and registered from a legal point of view.
Each of the described options for joint business activities has its own advantages and disadvantages. Before giving preference to one of them, you should carefully weigh the pros and cons, assess the likely risks and possible damage.
In any case, running a joint business is much more profitable and safer than conducting individual entrepreneurial activities separately. LLC is solid, profitable and safe for businessmen.
Taking responsibility and studying the legal intricacies of the issue is necessary for people who want to do business. It is important to understand how serious this is and what the consequences of incorrect behavior and legal illiteracy may be.
When starting a joint business, many entrepreneurs lose sight of several important points that should be agreed upon, considering them to be of minor importance. Today we will look at 7 common mistakes, which could lead to the collapse of your joint venture.
At the very beginning of opening a business, future co-owners should definitely discuss the following issues:
1. Choosing a partner.
Who to choose for joint business- This is a question that every aspiring entrepreneur should think about. It is believed that the worst options to choose are relatives and close friends. It’s paradoxical, because we usually have trust in such people, which we think is necessary in business.
But the main danger here is that family and friendship relationships in business are often destroyed. You have to choose what is more important; and if relationships with loved ones are really important, then it is better to preserve them and not mix them with business ones.
When you need to take into account everything: his reputation, business and personal qualities; The impression of future partners on each other will be important - it should be mutual sympathy. A different attitude will inevitably become an obstacle to business.
2. Shares in the business.
Very often business partners settle on the option "50/50" , rightly believing that two adults with the same capital can have equal rights in business. However, practice shows that such a decision often results in problems for the company. During work, it turns out that each of the partners has his own view on resolving issues, their tactics are different, and so on. And they increasingly cannot agree, as each insists on his own point of view.
The best solution here would be to elect a leading leader, who is endowed with great powers, but he must also bear great responsibility for his decisions. It is desirable that this person has experience in entrepreneurial activity, at least a little.
3. Separation of duties.
Very it is important to divide the areas of decision-making and responsibility between the co-owners. A clear separation is necessary so that the second business partner does not have the temptation to shift the entire burden and obligations to the first person of the company and, as a result, to exist at his expense.
The division of responsibilities is best done in writing. This will help avoid situations where it is unclear who is responsible for what and who should correct errors that occur.
4. Options for termination.
Of course, few people want to think at the beginning of their activity that the enterprise might ever cease to exist. But this is not such a rare case that you can ignore this issue. The statistics speak for themselves - 70-80% of businesses close in the first year. Be sure to agree on how the partners are going to separate. The ideal option would be to consolidate these conditions in the company's charter.
5. Business plan.
Many companies begin by simply expanding their activities in a certain area after registration. Not everyone bothers to run their business fully.
However, the initial, preparatory stage is not just a tribute to fashion, but the foundation on which the enterprise will develop further. Without a clear plan at hand that takes into account possible difficulties, obstacles and options for dealing with failures, the company may encounter unexpected pitfalls that it cannot overcome.
6. Profit distribution.
Unfortunately, there are often situations when this issue is ignored when creating a business. But it is obvious that partners may have different views on the extent to which profits will be reinvested, how much will be used for personal needs and for attracting new projects.
Available option for regular voting on issues of profit distribution. However, the minimum percentage that will be invested in the development of the common cause must be jointly determined and fixed in advance.
7. Use of personal and borrowed funds.
Investing your own money seems risky to many beginning businessmen. However even more risky is the use, which in case of failure will still have to be returned.
This is a question worth thinking about and discussing., do entrepreneurs have the opportunity to start work only with personal funds and what are the chances of a painless return of the funds raised in case of an unsuccessful start. It is imperative to reflect this point in the business plan.
The main thing to remember when starting any business, is that it should bring pleasure and provide the opportunity for self-realization to those who participate in it. And then, with proper organization, the business is doomed to success!
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