I have met thousands of entrepreneurs over the years. Some of these entrepreneurs run companies which invoice several million euros.
Some have made a fatal mistake, which they realized only when it was too late. It is an error that concerns lack of vision, which in itself is a mistake from a business point of view.
Without proper planning, you pretend that there isn’t a problem until it overwhelms you and at this point it is too late.
This error relates to the type of company that has been chosen for the business. It is a fatal mistake to choose a partnership and I’ll explain why. Partnerships are typically Limited Partnership Companies in a Collective Name.
Entrepreneurs choose them for 3 reasons:
• to save on the cost of the constitution of the company
• to avoid paying taxes
• to create a business with relatives and associates to keep things in the family
If you are an entrepreneur, this is the biggest mistake that you can make. How can you draw up contract with a partner and think that it is not worth putting in clauses relating to the breakdown of the relationship, if this should happen?
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Contracts are drawn up to avoid or to handle the worst scenarios. Similarly, companies should be set up in a way where they are protected.
If you have chosen to set up a company for one of the three reasons above (or for any other reason that does not provide access to sources of financing that otherwise you would not have). Be careful about the accountant that you choose. The choice of an accountant is your responsibility and you have to have a consultant who is able to protect your business.
Partnerships have a hidden cost
Why do you think corporations cost so much? If you are thinking about the money you have to pay to get a notary involved (it is expensive, maximum 2,000 – but if it’s a simplified Limited Company notarial charges are only 330!) And you have to pay for accounting (say 1,500 more a year?). Yes there are significant costs.
But have you ever thought about the risk you run as a holder of a partnership?
The answer is INDEFINITELY on a personal level and also financially. Do you know what it means to risk losing your beautiful home or your car because you got into a bad business partnership? This is the hidden cost of partnerships. So I ask you: what is the price of your peace of mind?
As a business owner, it is your duty to guide the company keeping it separate from your personal assets and protecting yourself. There are 5 reasons to form a corporation instead of a partnership, and I’ll explain them in the next article. In the meantime, do send me your comments on this issue.
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To Your Financial Freedom