How To Form A Business Entity? Basic Tips For First-Time Entrepreneurs


If you are thinking of adding partners to your business, it can be an excellent opportunity to expand your business. Adding an established company to yours; is a good strategy; one that increases profits and diversifies the asset base. It is not just the financial benefits that adding a partner guarantees.

The same is valid for startups, but before starting your venture, just analyze the category that your company belongs. Such an essential detail will spare many headaches and problems in the future!

Regardless the place you reside, every business must adhere to the legal precedents, such as the Civil Code. That is, they must meet the requirements of the Articles of Association; of each country.

You want to start a business, but do not know how to choose an entity?

Find here some tips to help you sort out some basic queries related to forming a partnership:

Dutiful Research

Putting members in your business is like being in a relationship, so considerations and evaluations are a must.

Perform a thorough research to make wise decisions and be sure of the viability of this partner, thus ensuring the continued success of your business.


Diversification is advantageous for building the partnership

In a business partnership, each partner commits himself/herself by putting efforts, expertise, and skills in exchange for a profit percentage share in the company, decided upon agreement.

By sharing the investment, the partners will be delimiting the participation of individual members listed in the entity. Therefore, it is a decision that requires careful evaluation.

Business partnerships take advantage of multiple partners, their skills, and resources; that they bring to the company. You certainly have many valuable skills to run the business just as your partners but their expertise is unmatched with yours, so you have untapped potential to learn.

It forms a strong bond between the employer and the employees; thus increasing the chances of achieving a consistent set of good results. You can be an excellent leader, who motivates his team and gets the best out of his/her employees.

A company can make the management more efficient and unite different potentials. The same situation applies to the case of members who, even acting in the same area, have different specialties within the same branch of activity. Putting these two conditions together brings more scope to your company.

Security from the start

The upside is that partnerships are easy to set up and manage. The first step of a company is the social contract.

Consolidation and formalization of the corporate model are fundamental to be made clear and to record what are the responsibilities of each partner and also what percentage of the company for each possesses.

Make sure, however, to have a lawyer to check the partnership agreement before you sign it because partners have a legally recognized shareholding. Each is an agent for the company and can hire employees, operate businesses and lend money.

The profits are treated as personal income, and on the downside, the partners are personally liable for taxes and debts. The social contract must also provide for the departure of partners and establish the conduct adopted in this case.

What should you consider before adding a partner?

Business owners sometimes rush to form partnerships with another company and end up making mistakes. An assessment of all the facts is critical, as you will now have someone to consider, consult and share decision-making.

If the style and temperament of your future partner’s business are not compatible with yours, then the association may not last longer and bring more problems than benefits.

Before taking the decision to bring partners in your company, consider asking yourself or your legal counsel; some of these questions:

  1. What is your plan to define the division of responsibilities?
  2. What benefits will your partner bring to your business?
  3. Is your business able to maintain a new partner employee?
  4. Is there mutual trust between you and your prospective partner?
  5. After answering these questions and assessing the viability of your new partner, it is time to consider some quantifiable aspects of your association.


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Image Credits: Honcho

Establishing a trial period with tangible goals for the future; is essential.

Everything should be documented and shared so that everyone has an open and honest dialogue about the prospects of a partnership. It will give you additional information to measure your partner’s skills and contributions.

After carefully evaluating the qualities of your new partner, you are finally ready to close the deal. An entity agreement detailing rights, responsibilities, actions to be taken and obligations formulated. It ensures, both, for the company and the partners, their legal rights and protection under cases of solvency.