To start a business, the one most common question that arises in the mind of every business person is “whether he should start it solely or share the profit and loss with someone else?”. There sole proprietorship and partnership are the two concepts that come in the way of decision-making time. These two terminologies are completely different from each other. And in this article, we will understand the complete difference between sole proprietorship and partnership. The content of the blog is as follows.
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Definition Of Sole Proprietorship
Sole proprietorship refers to the form of business in which individual wishes to establish or start a business, manage investment, and bear loss and profit by himself(lonely). In a sole proprietorship, there is no distinction between assets and liabilities and its owner. In this form of business, a person uses his knowledge, skills, money, and experience to run a business and he has full control over all the business activities. Moreover, The individuals who own sole proprietorships are known as sole proprietors.
Advantages Of Sole Proprietorship
Some of the advantages of a sole proprietorship business are as follows.
- This form of business can be easily established
- A sole proprietor has supreme authority to make quick decisions and prompt business actions.
- Minimal record keeping is more sufficient in this form of business as it does not require lots of legal formalities to be complied with.
- A sole proprietorship helps to avoid double taxation.
Definition Of Partnership
On the other hand, a partnership is another form of business organization, in which there is a relation between two or more persons, engaged to run a business and agreed to share profit and losses in a specified ratio. In this type of business, the members mutually agree to face all the profits and losses of the business. The members involved in this form of business are known as partners/agents of the firm, while they are jointly known as the firm.
The partnership may have the following major components.
- Agreement between the partners
- Bearing profit and loss.
- Sharing business to be run by all or by any of the partners who will look after the business work on behalf of other partners.
Various types of partnerships are:
- General partnership
- Particular partnership
- Limited liability partnership and
- Partnership at will
While the various types of partners may be:
- Active Partners
- Nominal Partners
- Incoming Partners
- Outgoing Partners
- Sub Partners
- Partners for Profits Only.
Sole Proprietorship Vs Partnership(Comparison Table)
|Basis For Difference||Sole Proprietorship||Partnership|
|Definition||It refers to the form of business where the individual is the owner as well as the operator of the business.||It refers to the business model where two or more two persons agree to run a business and share profit and loss mutually.|
|Owner Known As||Sole trader or sole proprietor||Individual members are known as partners and collectively known as a firm.|
|Maximum Members||Only one||100 partners|
|Liability||Rests with the proprietor only.||Shared by partners|
|Finance||The scope of raising capital is limited.||The scope of raising capital is comparatively high.|
Difference Between Sole Proprietorship And Partnership
The key differences between sole proprietorship and partnership are as follows.
- Sole proprietorship refers to the form of business in which individual wishes to establish or start a business, manage investment, and bear loss and profit by himself(lonely). On the other hand, a partnership is another form of business organization, in which there is a relation between two or more persons engaged to run a business and agreed to share profit and losses in a specified ratio.
- While the owner of a sole proprietorship is known as a sole trader or sole proprietor, the owners of the partnership individually are known as partners, and mutually they are known as a firm.
- The enrollment or registry of a sole proprietorship is not compulsory. On the other hand, it is the preference of the partners whether they want to register their firm or not.
- The minimum and maximum members in a sole proprietorship are one only. On the other hand, in partnership, the minimum limit of members should be two, and it could exceed up to 100 partners.
- In a partnership, the owners of the business share liabilities with one another. On the other hand, in a sole proprietorship, all the liabilities rest with the proprietor only.
So, with the above discussions, we can conclude that both sole proprietorship and partnership are the two models of business. Both of these models have their own pros and cons. Some people prefer sole proprietorship while some prefer partnership. In a partnership, the owners of the business share liabilities with one another. On the other hand, in a sole proprietorship, all the liabilities rest with the proprietor only.