Knowledge and Expertise Sharing
Sole proprietorships reduce the possibilities of attracting external expertise. As business owners obtain investment from new partners after converting from a proprietorship to a partnership, they can also leverage the professional knowledge and contacts of the partner. This approach is especially helpful in cases where new partners are willing to share their expertise and contacts in return for a share in profits generated by the partnership.
Distribution of Liabilities
Converting to a partnership also safeguards owners of sole proprietors from the negative concerns of unlimited liability. Even though a sole proprietorship ensures unlimited liability, it can be a massive detriment in the event of debt or a catastrophic scenario. Therefore, the business owner must take personal liability in case of a proprietorship. On the other hand, a partnership helps in sharing liabilities among all the investing partners. Apart from sharing finance, expertise, and industry knowledge, partners also provide a safety net for businesses.
Single Project Partnerships
Limited partnership arrangements could also foster the benefits of limited exposure to risk for partners. Such type of partnership agreement is generally valid for single projects where partners collaborate with sole proprietors. The single project or limited partnership format helps proprietors in terms of financial assistance for single projects. Partners would have to face limited risks in single project partnerships.
No Need for Starting a New Business
With the conversion of a proprietorship into partnership, all the movable and immovable properties are vested automatically in the partnership alongside the liabilities and assets. Therefore, there is no specific requirement of fixed capital investment to start a new business altogether after the transformation. Partners can reach on agreements regarding their contributing amount to the partnership and mutual decisions regarding withdrawals. So, the transformation from a proprietorship to a partnership does not compromise on flexibility.