To start and sustain a business in Nigeria is delicate; it requires products/services with high market demands and carefully selected partnerships.
From the saying that whatever is worth doing is worth doing well, we can infer that it is wise to calculate the cost of setting up an organization, make a proper analysis, and gather enough intellectual capacity to keep a return on investment.
This article covers in full detail what every Nigerian entrepreneur should know about partnership in business.
What is Partnership in Business?
A business partnership refers to a legal agreement between two or more entities to establish and operate a business wherein they share the resources, gain, and loss of the company.
It is a business relationship where the parties involved have specific responsibilities and joint rights.
Examples of Partnership in Business
There are three relatively common types of business partnerships, and they are listed below with examples.
General partnership (GP)
A general partnership consists of partners with joint efforts in the daily operations and management of the business. They share equally in the risks, profit, financial and legal liabilities of the business.
For example, John and Daniel decide to open a telecom business. They name the business JD. By opening the business together, John and Daniel are both general partners in the JD company and equally share every profit and loss.
Limited partnership (LP)
This is similar to a general partnership but not the same as it has one or more general partners who manage the business and have unlimited liability. And at least one limited partner who is not involved in the management of the business and has limited liability up to the amount of their investment.
For instance, (Continued from the previous example of JD telecom company), Dr. Martins sees that the JD telecom company yields quality revenues and legally invests his 20 million into the business. Dr. Martins becomes a limited partner.
He doesn’t take part in the management of the business but gets a share in the profits of the company up to the amount of his investment.
Limited liability partnership (LLP)
A limited liability partnership has some or all of the partner’s responsibilities and liabilities limited.
The partners here are not accountable for the company’s debt, misconduct, or negligence. They also aren’t responsible for the acts of other partners.
An example of this is Mike (A graphic designer), Tade (A web developer), and Favour (A content writer) partner and set up a media agency. They can make business and management decisions but are not personally liable for the company’s debt as it is registered as a separate entity.
Read also: How to choose a business name in Nigeria.
Advantages of Partnership in Business
A business partnership is a systematic way of enhancing business productivity. It shows a high level of commitment, as it is said that two good heads are better than one. The advantages include the following;
Businesses strive with risks and thus can’t be separated from them. In a partnership, the weight of risk management won’t be as heavy as in a sole proprietorship.
This makes work faster and more productive. It promotes team spirit, and if adequately assigned and implemented, it reduces stress, saves time, and increases efficiency.
Larger financial strength
Sharing of profits demands a combined resource invested in the business. The more partners, the more money invested.
Joint efforts and intellectual inputs
This opens the door for creative brainstorming. The business partnership brings different people with capacities and strengths, complementing each other’s weaknesses.
Higher borrowing capacity
Having more than one partner increases the ability to raise funds and borrowing capacity.
Read also: 10 Major importance of Taxation in Nigerian businesses.
Disadvantages of Partnership in Business
Despite its advantages, partnership in business also has shortcomings, especially inequality and sovereignty.
Absence of autonomous authority
Compared to sole proprietorship, critical decisions can not be made by one party. It, at some point, requires going through a series of approval before implementation, which may cause delay.
Possibility of conflict
There are high chances of conflict in a general partnership where both partners make operational decisions in the company.
Values may not align in the long run, and business discretion issues, level of commitment, unmet expectations, differences in personality type, and priorities.
Partners can decide to withdraw their commitment,t, and this may affect the business stability and growth.
Partners in the business get a share of the company’s drawbacks in cases of losses, debt, or sanctions.
And in some cases of misused funds, invested time, energy, and resources become wasted.
Starting a Partnership Business in Nigeria
Business partnerships in Nigeria must be legal, and the policies spelled out, documented, and registered for better clarification.
The registration has to be in the state in Nigeria where the business is located, abiding by the different kinds of business partnerships that are allowed to be formed in each state.
- Firstly, the business has to be registered with the corporate affairs commission (CAC).
- Details of partners, including full name, phone numbers, residential address, email address, ID cards, and photographs.
- Details of the business should include name, address, business model, product/services, etc.
- A partnership agreement that is suitable for the type of partnership being registered.
- Signature of all partners
- Choose your partners and specify the type of partnership.
- Register the partnership.
- Obtain a tax ID number.
- Establish a partnership agreement which should include accounting methods, partnership duration, roles and responsibilities, tax obligations, and percentage share.
- Obtain licenses and permit.
- Open a business bank account.
- Begin execution.
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Every Nigerian entrepreneur who understands the value of building business networks will not hesitate to embrace good partnerships.
Additionally, with the rising numbers of startups and entrepreneurs painting innovation in Nigeria, we can ascertain that it is fertile ground to establish numerous partnerships with businesses.
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