International studies published in 2021 have stated that entrepreneurial behavior is preceded by entrepreneurial intention, which in turn is preceded by entrepreneurial competence. Entrepreneurial competence is determined by certain rare personality traits. These personality traits are therefore determinative of whether an individual or individuals start a business.
Entrepreneurial Personality Traits
According to these studies, personality traits said to contribute to entrepreneurial competence and therefore entrepreneurial intention and behaviour include;
- A need for achievement
- A propensity for risk taking
- A need to be in control and ability to self-regulate or self-control
- Need for autonomy
Since starting a business necessitates seeing a gap in the market, another personality trait of entrepreneurs is entrepreneurial alertness, the ability to recognise valuable business opportunities. Self efficacy and optimism are said to contribute to entrepreneurial alertness. Furthermore, since starting a business is inherently stressful, the ability to deal with stress is a vital trait for any entrepreneur.
Needless to say, not everyone involved in starting a business possesses these traits. For this reason, some individuals may choose to structure their business as a sole proprietorship. However, it is possible for entrepreneurial and non-entrepreneurial individuals to start and grow a business together. One business structure which lends itself to such an arrangement is a limited partnership. You can read more on how to form a limited partnership on Incorporation Rocket.
Why Choose a Limited Partnership?
Partnerships allow two or more individuals to work towards a common business goal.
However, for individuals who do not possess entrepreneurial traits such as creativity and risk taking, it may be difficult to work with entrepreneurs who in turn tend to want independence and control. A limited partnership structure allows both types of individuals to play a role.
Limited Partners versus General Partners
Limited partners are also referred to as investors, because while they contribute capital to the business, they are not involved in the day to day decision making. General partners on the other hand are responsible for the day to day operations and decision making of the business, although they may also invest capital when the business is starting out. The entrepreneurial acts of innovation and taking control are therefore left to the entrepreneurs, the general partners.
The risk taken on by the different partners also differs. Limited partners’ liability is limited, typically, to their initial investment, whereas general partners are personally liable because their decision making is what may result in things going wrong. Therefore, limited partners can contribute to the business while leaving the real risk taking to the entrepreneurs for whom it comes naturally.
Alternative Partnership Structures
There are several alternative structures a partnership may take:
- General partnerships
- Limited liability partnerships (LLP)
- Limited liability limited partnerships (LLLP)
- Joint ventures
Each of these partnership arrangements lend themselves to certain types of businesses, as each have their own formality requirements and personal liability implications. A LLLP is the most similar to a limited partnership with the only difference being that in a LLLP, general partners’ personal liability is also limited. While each of these arrangements has their benefits, a limited partnership or LLLP, due to the separation in roles and responsibility for limited and general partners, is potentially most suited to a partnership made up of some individuals who do possess entrepreneurial traits and some that do not. A LLLP may seem the more attractive option but is only currently available in 29 states.
Should a limited partnership or LLLP seem like a desirable arrangement, there are certain formalities required that are not required in a general partnership. Limited partnerships and LLLPs must be registered with the state, which is done by filing a certificate of limited partnership which sets out certain information, such as the roles of the partners and the identity of the registered agent. Partners will also need to enter into a partnership agreement which sets out their roles and how decision making is to take place, both day to day and major decision making.
Not everyone can be an entrepreneur because not everyone possesses entrepreneurial traits. These rare traits are a combination of knowledge and experience and traits such as entrepreneurial alertness appear to have been linked to the increased financial performance of a business. However, it is possible for non-entrepreneurs to start businesses by partnering with entrepreneurs. A structure which allows both types of individuals to contribute to the business is the limited partnership.