Sole Proprietorship vs Partnership: Difference and Comparison

 Business is any activity, including the buying or selling of commodities or services for making a monetary profit. Business can be conducted on a smaller as well as larger scale.

Key Takeaways

1. A sole proprietorship is a business owned and operated by a single individual, while a partnership involves two or more owners working together.
2. Sole proprietors personally bear all the business risks and liabilities, while partners share the responsibilities and obligations of the business.
3. Partnerships require a formal agreement outlining roles and responsibilities, while sole proprietorships have fewer legal formalities and lower setup costs.

Sole Proprietorship vs Partnership

The difference between Sole Proprietorship and Partnership is that in a sole proprietorship, there is only one member. Whereas, in Partnership, there can be multiple partners between two or 100.

Sole proprietorship refers to the type of business in which there is only one member, called the Sole proprietor or owner. The sole proprietor is the owner and runs the business and is also the one who enjoys the profits of the business.

Partnership refers to the type of business in which there are more than 2 people. The partners are the owners of the business.

Comparison Table

Parameters of Comparison	Sole Proprietorship	Partnership
Business act	There is no specific act governing its business activities.	The activities of the business are governed by the Indian Partnership Act, 1932.
Owner	The sole Proprietor is the only owner.	The individual members called partners are the owners.
Members	The minimum number of members required is one. The maximum number of members required is one.	The minimum number of members required is two. The maximum number of members required is one hundred.
Freedom to operate	There is full complete freedom of operation.	As decisions are taken mutually, the freedom of operation is restricted.
Liability	Liabilities are the responsibility of the proprietor.	Liabilities are shared by partners.
Finance	There is limited scope for financing.	There is more scope for financing.

What is Sole Proprietorship?

A sole proprietorship is a business that is run by only one individual. Here, the individual is the investor, manager, and profit maker.

Even if the decision or step is taken can be big or small. The proprietor has the complete right to make decisions on his own without anyone’s approval.

Example: If there is a shop which is owned by Mr X, then all the decisions of the shop will be made by Mr X. If he wants to extend the franchise, he can do it.  

What is Partnership?

A partnership is a business that requires at least two members. Here the business is run by the partners, and the profits and losses are divided equally among themselves.

The ratio of profit or loss is decided at the time of the partnership agreement. This ratio depends on the ratio of investment.

Main Differences Between Sole Proprietorship and Partnership

1. There is no specific act governing its business activities of Sole Proprietorship. The activities of the Partnership business are governed by the Indian Partnership Act 1932.
2. The sole Proprietor is the only owner in Sole Proprietorship. The individual members, called partners, are the owners.
3. In Sole Proprietorship, the minimum number of members required is one, and the maximum number of members required is one. In Partnership, the minimum number of members required is two, and the maximum number of members required is one hundred.
4. In Sole Proprietorship, there is full complete freedom of operation. In a Partnership, as decisions are taken mutually, the freedom of operation is restricted.
5. In Sole Proprietorship, liabilities are the responsibility of the proprietor. In a Partnership, liabilities are shared by partners.
6. In Sole Proprietorship, there is limited scope for financing. In Partnership, there is more scope for financing.

References

1. http://www.scirj.org/papers-0618/scirj-P0618533.pdf