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
- A sole proprietorship is a business owned and operated by a single individual, while a partnership involves two or more owners working together.
- Sole proprietors personally bear all the business risks and liabilities, while partners share the responsibilities and obligations of the business.
- 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
- 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.
- The sole Proprietor is the only owner in Sole Proprietorship. The individual members, called partners, are the owners.
- 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.
- In Sole Proprietorship, there is full complete freedom of operation. In a Partnership, as decisions are taken mutually, the freedom of operation is restricted.
- In Sole Proprietorship, liabilities are the responsibility of the proprietor. In a Partnership, liabilities are shared by partners.
- In Sole Proprietorship, there is limited scope for financing. In Partnership, there is more scope for financing.
Last Updated : 24 November, 2023
I’ve put so much effort writing this blog post to provide value to you. It’ll be very helpful for me, if you consider sharing it on social media or with your friends/family. SHARING IS ♥️
Chara Yadav holds MBA in Finance. Her goal is to simplify finance-related topics. She has worked in finance for about 25 years. She has held multiple finance and banking classes for business schools and communities. Read more at her bio page.
The article provides a comprehensive overview of the fundamental differences between Sole Proprietorship and Partnership. Great insights!
The article accurately points out the specific acts governing the business activities in Sole Proprietorship and Partnership.
Agreed. The legal formalities and setup costs involved in each structure are significant factors to be considered.
Absolutely, having a clear understanding of these acts is essential for making informed decisions about the business structure.
The differences in the scope of financing between Sole Proprietorship and Partnership are crucial aspects to be mindful of when choosing a business structure.
Absolutely, understanding the financial implications of each structure is important for the long-term success of the business.
Indeed, the financial freedom and limitations in the two structures can significantly impact the growth and sustainability of the business.
The detailed comparison table effectively highlights the differences in various parameters between Sole Proprietorship and Partnership.
Agreed. The tabulated format makes it easier for readers to assimilate the information and make informed assessments.
Absolutely, having a clear visual representation of the differences aids in understanding the nuances between the business structures.
The example used to illustrate Sole Proprietorship effectively conveys the concept. It is certainly helpful in understanding the practical application of this business structure.
Absolutely, real-life examples make it easier to grasp the nuances of business structures.
Agreed. Providing relatable examples enriches the understanding of the readers.
Both Sole Proprietorship and Partnership have their pros and cons. It is important to carefully consider which business structure is the most suitable for your needs.
Definitely, the decision between the two largely depends on the business requirements and the risk appetite of the individuals involved.
The post does a good job in explaining the differences between Sole Proprietorship and Partnership
I agree, the article clearly outlines the key takeaways and provides a useful comparison table
The freedom of operation in Sole Proprietorship and the shared decision-making in Partnership are key distinctions that impact the governance of the business.
The clear explanation of the main differences between Sole Proprietorship and Partnership enables readers to make well-informed decisions based on their business requirements.
Absolutely, understanding the implications of these differences is crucial for aspiring entrepreneurs.
The reference listed at the end of the article adds credibility to the information presented. It is always important to back up content with reliable sources.
Definitely, citing authoritative sources enhances the authenticity of the content and validates the claims made in the article.