As a small business owner, you may at one point have been curious about forming a business partnership. Operating your petrol station with the help of a partner can be hugely beneficial, and can contribute to the success of your service station if done correctly. From a well written partnership agreement to choosing the right team, there are key things to consider to make sure you and your partners are destined for success. If done right, the pay-off can be well worth the work.
Types of Partnerships
If you’re feeling overwhelmed at the prospect of growing your petrol station alone but don’t wish to incorporate, a partnership may be the answer you’re looking for. Before moving forward with this transition, however, it’s important to understand your options. There are three different kinds of partnerships available: general, limited, and limited liability.
General partnerships involve two or more people running a business, sharing equal rights and responsibilities, with each person having unlimited liability for the actions or debts of other partners and the service station itself. Limited partnerships have one general partner who assumes full personal liability, while the other partners can restrict their personal liability according to their shares or investments. Finally, in a limited liability partnership, or (LLP), there is limited individual responsibility for wrongful acts of the other partners and personal liability for the business’ debts.
Most petrol station owners would likely be looking at general or limited partnerships, as LLPs are typically used in much larger service businesses.
Partnership Benefits and Advantages
Each partnership structure is taxed the same way, and each type results in tax advantages for your service station, as partnership profits pass directly to the partners who can include the gains on their individual tax returns at year end, at a much lower rate than personal income.
In general, partnership structures are easy to set up and inexpensive to register, and often make it easier to raise your capital as each partner brings new financial resources. Not to mention, investors and creditors are more likely to do business with partnerships than with sole owners.
A good partnership also allows you to take some of the pressure off yourself, as you’re no longer a one-person show. Working with multiple people means shared expertise, perspective, and brain power, and all of this collaboration increases your chances for success and growth at your petrol station. This isn’t to say, however, that there aren’t some things to consider before jumping into business with someone else.
Things To Consider Before Agreeing to A Partnership
There’s no doubt that a partnership can sound like a perfect situation, but drawbacks can present themselves and can cause problems if not considered.
Those looking to create a partnership structure for their petrol station should realise that they are agreeing to share control and decision making with one or more people, and will be sharing profits in accordance with their partnership agreement. Disagreements or conflicts among partners can jeopardise the growth of your petrol station and your business as a whole if they are not solved.
All partnerships mean that each person is sharing some kind of responsibility or liability for the other. For example, if one or more partners is sued or goes into debt, everyone on the team may be jointly liable and on the hook for the defaulting partners share. Furthermore, if one partner wishes to leave the agreement or is forced to leave, the others must be able to buy out their share.
This is why it is critical to carefully consider what kind of partnership structure works best for your petrol station, and make sure that each member of the partnership is in agreement. You should also make sure that all business partners are people who you have good working relationships with, who you trust to talk through conflicts, and whose perspectives you are always willing to consider. If precautions are not taken, or partnerships are designed unwisely, things can unravel fast.
Your Partnership Agreement
We’ve mentioned the phrase “partnership agreement” a few times, but haven’t fully explained what it entails. At its core, a partnership agreement is the defining document that dictates how the partnership will operate. This agreement can be verbal or written and begins as soon as operation begins, however like all profesional agreements, it’s best to have these agreements written and signed. A good agreement drastically reduces the possibility of issues and disputes later on, and forecasts for potential problems at your station.
We recommend a good contract lawyer to review the document and make sure that it is comprehensive in order to prevent potential problems, and save you time and money in the future. Partnership agreements should cover the full spectrum of potential concerns. Some of the main points should include:
- The name, establishment, and location of the partnership
- The roles, appointments, management, and retirements guidelines for partners
- Financial contributions and profit/asset distribution
- Partner borrowing guidelines and partner compensation
- Decision making guidelines
- How to resolve dispute and what to do in the event of partner deadlock
- And how the partnership can be dissolved
Partnerships Can Be Your Key To Growth
Managing your petrol station alone can be rewarding, but can become undoubtedly overwhelming especially when you’re looking to expand or grow. Sometimes it may feel like you wish you had more help.
Business partnerships are great opportunities to find both the extra support and resources you’re looking for, while bringing unseen advantages such as tax breaks to the table as well. With a well designed partnership agreement, trust in your partners, and a little hard work, your team can quickly take your petrol station to the next level.