Disadvantages of a General Partnership

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A business partnership can be one of the most turbulent relationships. Because money is involved, more than feelings can be hurt. The main difference between a general partnership and a limited partnership is that limited partners have a smaller responsibility to the business and are less liable if things go wrong, depending on the agreement. General partners must shoulder equal weight in all situations related to the business--the good, the bad and the ugly.

Financial Risk

Because a general partnership is unincorporated, each owner's personal assets are at stake. If a debt is due, each partner is equally and legally responsible for paying back that debt. Because of this, a failed general business partnership can result in bad credit for one or both of the owners, or even personal bankruptcy.

Making Moves with Clients and Suppliers

When you have a partner with equal power, it is sometimes difficult to get on the same page. You can't make a business move with potential clients or suppliers without first getting approval from the other partner. If you act singularly, it is a definite sign that the business partnership is in danger.

When each business partner has a completely different idea about who to do business with and who to buy from, nothing can get accomplished. Deadlines are missed, opportunities are lost, and resentment grows. So a huge disadvantage to a general partnership is the fact that you have to answer to another person regularly before taking any steps for the business.

Investment Issues

In a general partnership, each partner may be making investments toward the business from her personal stash. For example, one partner might decide to take a business trip to scope out new prospects. When it comes time for reimbursements, arguments may ensue as to whether the investments were right or beneficial for the business. When a partner isn't reimbursed for expenses that she believes are business related, it can cause bad blood within the business. In an extreme situation, the affected partner may be less motivated to make the business succeed and start looking for a way out.

In the case of an initial business loan or investment, the partners may have to make difficult decisions about how the money will be spent. The progress of business operations are likely to be held up when partners disagree about spending issues.

Differences in Personality

Many times, business partners don’t consider the implications of working together in a business atmosphere before they start a company. In many cases, friends, family, and former colleagues get together to start a business. This can either be a blessing or a curse, depending on the personalities of each owner.

When you have one owner who is more laid-back and takes a "wait-and-see" attitude toward the business as opposed to another owner who is meticulous, hard working and proactive, there is sure to be a butting of heads somewhere down the line. When heads butt continuously, money and time get lost and eventually the partnership heads toward dissolution.

Resolution

The majority of business partnerships fail because the partners can't come to an agreement. It's important to outline a third-party mediator or mediation service to iron out issues so that the business can survive. In most partnership agreements, when a resolution cannot be reached one partner can buy out the other partner. When one of the owners is the clear cause of why the partnership cannot continue (usually after a mediation has been held), the other partner will automatically assume ownership.

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