Is it a Good Idea to Start an LLC with a Cofounder/Business Partner?
Getting a new Limited Liability Company (LLC) off the ground is quite a challenge. Once you begin the process of bringing your vision to life, you will undoubtedly find yourself facing one surprising obstacle after another. At some point, you may even wish you had a partner to share the workload, lend some support and identify effective solutions to your most demanding problems. However, finding a reliable partner brings up another heap of questions you need to ask yourself.
If you’re really serious about starting an LLC with a partner, the first step is to educate yourself about the legalities involved in bringing a business partner into the picture. You’ll find some distinct advantages of taking on a business partner — but be careful not to rush into anything without reading about what you can expect from partnership agreements. Let’s hit the basics so you understand whether partnering up for your LLC is even a good idea.
LLCs and Partnerships
Contrary to what you may have heard, you don’t actually have to set your company up as a limited partnership or even a general partnership to take on a business partner. An LLC itself can actually be owned and managed by a single founder or many, making it perfectly suitable for a scenario in which you work alongside a business partner.
Because they are based on state law, LLCs are much easier to create than most other kinds of business entities. Not only do they lend themselves to a flexible management structure, but they also provide legal protections for each legal owner (or member) of the company, safeguarding them from the liabilities and debts of the company itself.
In this way, many professionals see an LLC as the ideal structure for their partnership needs. Think of it as the best of both worlds. As in a partnership, you still retain the ability to shift your management style and profit distribution, but with the added benefits of almost universal personal liability protection. If you’re looking to enjoy the full legal benefits of an LLC but adamant about working with someone you trust — who can help you offset the responsibility and weigh in on decisions — then you should strongly consider an LLC as the solution you need to make the most of your burgeoning business venture. Chances are you’ll find that the simple registration process required for an LLC is well worth the perks your company will receive as a result.
If you are aiming for every member of your LLC to have a hand in how your company is managed and operated, this is known as a member-managed structure. All members receive a portion of the profits and have a voice in deciding the company’s direction. Unless specified otherwise in your operating agreement, this is the default structure of your LLC. So, if you will have members who shouldn’t have ownership stakes in the company, be sure to specify this in your paperwork and clarify everyone’s roles early on. You’d then be opting for a manager-managed structure, in which only designated individuals have executive standing in the eye of the law.
An Undeniable Upside
So we’ve addressed how an LLC embodies the essence of a partnership, while also including additional protections and flexibility that you’d otherwise be unable to claim. However, besides the legal benefits of your company’s corporate structure as an LLC, you’ll also get the perks of having a business partner by your side. While we would never minimize how valuable the emotional support and motivating power of having another person entrenched in your business with you, the sheer involvement of a partner also means much less pressure on you when it comes to getting your business off the ground.
For instance, start-ups can be extremely risky and expensive to launch, and having a business partner means you won’t have to invest all of your own money in the business upfront. Likewise, the mountain of administrative duties involved in starting and maintaining your business can be daunting, as many business owners are forced to don multiple hats early on. When you have a partner, you can divide up the workload according to each of your skill sets, often getting more done in less time than if you attempted to go solo.
Still not convinced? Consider the following statistics, which quantify the benefits of simply having two partners managing your business. According to recent research, companies with two partners tend to raise 30 percent more money than other organizations, likely because they have more access to potential investors and two people hustling to amass capital. Partnership companies also feature almost triple the user growth and are 19 percent less likely to scale prematurely. With two partners making critical decisions about when and how to grow your business, these moves are perhaps more carefully vetted. In the business world, two heads do appear to be better than just one.
Making It Work
Entering into a potential business partnership is a big step, but hopefully the above discussion can at least help you figure out whether it’s the right move for you and your business. Working with a partner may very well be the decision that helps propel your business to higher levels of efficiency and success.
At Incfile, we are always striving to help business owners just like you identify the best ways to build the strongest possible business. How you approach your business in its earliest days can set the tone for many years to come, and it’s our mission to support you and guide you in reaching your full potential. From the extensive resources we offer to our incorporation services, we are ready to provide our expert assistance and answer any questions you may have. Want to learn more about how we can help? Visit our website to get started today!