WHEN YOU ARE looking for finances for your business, understanding the difference between partners and investors is very important. The two parties can help you raise the necessary funds that you need to start and operate your business. However, they both play very different roles in the business.

An investor will basically put money in the business in hopes getting some returns on his/her investment.  On the other hand, business partners co-own a business. They raise the capital for the business as per agreement with each other. This explanation of business activity is probably the biggest difference between partners and investors. Business partners share losses and profits while investors expect returns on their investment. The business owner will shoulder the losses and ensure that the investors get good returns on their investment.

Another major difference between partners and investors is in the running of the business. Normally, investors will not participate in the day-to-day running of the business. However, you need to keep them informed of everything; in particular, the accounts of the company. They will want to know how you are spending their money, how the business is performing, and the returns accrued or expected. On the other hand, your business partner has to be involved in all the business operations. You may each play different roles, but you have to both be involved in the decision making.

General partnerships mean that all the business partners share all the business responsibilities equally. For instance, this means that profits and losses are equally shared among all of them. If the business experiences any major problems, all partners will have to accept liability. That means that if they fail to pay taxes and are arrested, all of them will be answerable. With that said, if four partners own a business together, they do not all have to own an equal share. One partner can own 50% himself, while the others only own 50% between the three of them. However, from a responsibility standpoint, when it comes to the investors, they have no obligations to share any responsibilities with the business owners. The difference between partners and investors is that the former is responsible for the business while the later is not.

The liability of the partners may be limited when it comes to limited partnerships (LLC’s). However, there is still one partner who has to accept unlimited liability for the company.

In some cases, investors may also be partners. For instance, an angel investor may ask for a share of the company instead of asking for returns on their investment. This is normally based on how he perceives the business potential and also his own interest in the business. The difference between partners and investors is that while one party assumes immediate co-ownership of the business, the other can decide not to co-own the business at all.

Understanding the difference between partners and investors is important, especially when you need to know where you can get your finances. Both parties can be very helpful to a business but you need to carry out adequate research in order to decide whether to get finances from partners or investors.