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Friday, 8 November 2013

What is the biggest mistake you can do in a business partnership? 

To just trust a partner..... Yes you should trust your partner in business but there is a fine line that needs to be understood.

No room for trust and friendship in partnerships. Get it in writing -

anything less will almost certainly end in tears, court and hardship

In an age where it is becoming more difficult to do business, take proper advice from
experts, well trained and qualified business people. It is far cheaper to get the advice upfront than to
go headlong into a partnership, only to find it is the wrong vehicle for you. A
handshake does stand up in court, but you are guaranteed more protection from a
partnership contract drawn up by a lawyer. Make sure that each partner`s individual
financial structure from an income tax and estate duty point of view is secure (you
don`t want to be going into a partnership with someone who has just gone bang) Draw
up a workable financial formula for the dissolution of the partnership. Partnerships are
based on trust but you can save yourself a lot of heartache if you set them up with the
idea that they might not always be rosy.

The first shoot of trouble often occur because partnerships are frequently divided
between one person who has full autonomy over finance while the other provides the
creative clout. “Partnerships are” he says “creatures of trust”

The court archives are full of business partnerships that devolve around genesis of
good will and end on a sour note. To a large extent, the business partnership has been
susperseded by the CC, which is governed by the Close Corporation Act and is a
separate legal entity with virtually the same legal standing as a private company and
where the corporate veil shields personal liability. However, there are cases where
partnerships are more attractive than a close corporations. It depends very much on
the nature of the business, the risk involved and the projected profit and loss profile.
Partnerships, if properly set up, can be easier to dissolve and can also be very
advantageous from a tax point of view.

The essentials necessary for the creation of a partnership are:

* Each of the partners brings something into the partnership, whether it is money,
   labour or skill.
* That the business should be carried on for the joint benefit of the parties.
* That the object should be to make a profit.

One of the problems that arises is without written contracts. Although the handshake
agreement is recognized legally, it is better to get things in writing. It is wise to
seek professional advice from a lawyer when drawing up a partnership contract. Such
a contract must pay particular attention to finances, stipulating each partner`s initial
financial contribution and entitlement to profits. A partnership contract must also
include legal precautions for the dissolution of the partnership.

It is more difficult to choose a partner than a spouse. “When they do work they can be
magic” The best advice is to go into all partnerships with the idea that you might
wake up one day and hate your partner.

Wherever you have got a partnership agreement, try to work into the partnership a
workable financial formula for its dissolution. In the end, it is this that will save
disillusion.

                              
Close corporation versus partnership

* The CC is a separate legal entity while a partnership is not.
* Membership of a CC is limited to 10, there can be up to 20 partners in a partnership.
* The member`s liability in a CC is limited. In a partnership the partners assume full  
    liability.
* The CC is considered a separate taxpayer. In a partnership the partners are liable for
   tax.
* A CC is taxed at company tax rates, whereas in a partnership the profits are taxed in
   the partners hands at each partner`s marginal tax rate.
* Losses retained within the CC cannot be offset against the member`s income. A
   partner`s share of the partnership loss can be offset against his/her other income.
* The member`s salaries are deductible for tax purposes, unlike the salaries of   
   partners.       


For Further information or advise please contact us by 
Phone: Frik 0825568368
           Elmien 074 373 1888
We have been Business brokers for more that 19 years and have a range of businesses for sale.
If you want to sell your business contact us!
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