Your Business Set-Up: To Partner or Not to Partner

Your Business Set-Up: To Partner or Not to Partner

When one starts his or her own business, it’s important to consider if this should be a solo or group venture. There a business entities that can be set up with one or many incorporators so really, it boils down to what the advantages and disadvantages are, and which one will suit better with the company’s business model and your work style.

Going Solo

There are two business entities that can be set up: sole proprietorship and one-person corporation.

Sole proprietorship means one individual is responsible for the entire company. The person is free to make the decisions whenever or wherever there is a need. It is also the easiest to set up. There is less paper work and there are actually very few legal restrictions and fees that need to be paid. However as a sole proprietor, that would mean that liabilities could extend to you personally. So if the business fails, creditors can collect not only from the company’s assets and properties but also from the owner’s personal assets and properties. For example you own a food business that delivers and your driver accidentally hits someone with your truck. The driver gets sued and you are named as a co-defendant. The victim can actually go after your business and personal assets. The government treats the business and the owner as one and the same. However, should the revenue not exceed P3 million,  it can avail of a 8% final tax.

Recently, the Philippines established its one-person corporation (OPC). The Revised Corporate Code of the Philippines defines a one person corporation as “a corporation with a single stockholder: Provided, that only a natural person, trust, or an estate may form a one person corporation.” Since the OPC is a corporation, it can avail of the standard optional deduction of 40 percent for income tax purposes.

Having Partners In a Business 

Partnerships happen when two or more individuals want to have a business but know they can’t do it all on their own. This maybe because they lack the capital, resources such as market connection or the knowledge to run the business. The choice of partners will greatly depend on what the individuals can contribute to the business whether it be financial or technical in aspect.

  • Complement Your Strengths and Weaknesses.

Romance Redirected, a local pastry shop started with three friends who wanted to have their own business. One has tried it out before but failed because, though he has the skill in baking, he has trouble handling the finances and marketing. The other was good with handling finances but is not really good at the kitchen. The third person meanwhile has good marketing skills and has all the connections. All three decided that they can merge their skills in order for them to run the business. This was a good partnership since they were able to play each other’s strengths and fill in for each other’s weakness. There is a separation of duties but all are responsible for the business.

  • Partners and their relationship

Going to business with other people is very tricky. You don’t just partner with anyone as trust plays a major role in partnerships. As things progress there can be a lot of changes regarding the directions each partner may want to take the business.

Falling outs between the parties involved may be due to several reasons. However, all these can be avoided by defining the details of the partnership from the start. There should be a clear cut understanding of the roles and how things are going to be run. With regard to decisions, establish which ones can be decided on by a single partner or those that would require the approval of everyone. Determine how each partner will be paid depending on his/her contributions. And if worse comes to worst, if there is a need to terminate the partnership, agree on how is it going to be done.

Communication is vital. Conduct regular meetings so that issues are immediately resolved and different ways of enhancing the business can be discussed and rolled out. As much as possible have everything in writing.  It is best that you really get to know who you are going to be dealing with and be professional when it comes to your business relationship.