Employees and partners are distinctly different, in a number of ways. It’s important to recognize this distinction when planning the future of your business. Here are some reasons why.
If you operate a business as a partnership, taking on an employee as a partner means giving the employee part ownership of your company. Reasons why you may want to add a new partner is that you believe the employee has connections that can help you win new business, or the employee has a complementary skill set that expands the services that you offer to existing clients. When things are going well, you’re sharing the company’s profits. If the partnership goes sour, the cost of ending it will be higher than with an employee, partly because the partner is a shareholder in your company. The emotional cost will also be significant.
Employees help the business run and add value to it. However, there are a few cons to consider. In today’s labour market, employees are changing jobs more often. The hiring and training process may have to be repeated often. A worker isn’t up and running on the first day. You’ll need to train them properly, particularly on your corporate culture and operating methods. You’re going to have to invest time and that means investing money.
Depending on the type of partnership, employees may fill many roles. Employees can be exempt or nonexempt, salaried or hourly, managers or line workers. Work with an accountant and a tax advisor to structure the pay and benefits packages for these employees properly. During the setup of the employee compensation packages, you can also address the compensation for yourself and other partners in the business, if applicable. Keep in mind that if you invest in a limited partnership, you do not participate in the day-to-day activities of the business. Instead, you just invest money or other assets in the business to ensure it can get up and running and remain operational. As such, if you have strong opinions about how the business is run or have a special skill set that would prove immensely beneficial to the company, you should aim to structure the business as a general partnership.