15 Key Difference Between Sole Proprietorship and Partnership

Thinking to start a business or having options of starting your own business or getting partners for that? Might be thinking that is partnership better than a sole proprietorship or sole traders is better than a partnership.

Here are 15 key variations between Sole Proprietorship and Partnership to help you to make the right decision considering your present conditions.

Both Personal businesses & partnerships have few similarities as they can be started with and without a partnership deed, and can be started and closed anytime with consent but differences are another side of the coin.

Possibly, the advantages of a partnership are better than sole proprietorship’s advantages or disadvantages of a sole proprietorship are worst compared to partnership disadvantages

Difference Between Sole Proprietorship and Partnership

Sole Proprietorship	Partnership Business
Easy Formation	Little Complicated Formation
One Owner	More than One Owner
No Contract Required	Legal Contract is Preferred
Limited Capital	More Capital Investment
Presence Required	Can be away from Business
All Profit & Loss by One	Profit Loss Distributed in Partners
Easily Transferable	Complex Transfers
The decision on one Hand	Multiple Heads to Decide
Stable Business	Risk of Stability
Everything is Secret	Secrets are Revealed
Limited Ability	Enhanced Ability
All Expenses by One	Expenses are Shared
Easy Dissolution	Complex Dissolution

Business Formation

• It is easy to form and simple to run. There are no legal formalities for the commencement of a sole proprietorship business. It can be started within minutes
• A partnership deed and other legal documents are necessary for the formation of the partnership. Every business activity, responsibility, capital, or profit-sharing must be mentioned here. There are more than 27 important contents of the partnership deed to note down

Number of Partners

• In a sole proprietorship, there is no concept of more than one person.  Business is owned by one person only
• There are at least two people in each type of partnership but no more than twenty in ordinary business and ten in banking. You can have more partners in Joint stock companies

Contract

• There is one concept of any contract type due to one man. He/She has all decision powers
• It is created by contract. An agreement is the most important element of a partnership. No contract means no partnership, it may be oral or written but recommended is written

Capital

• As one man invests his amount into his business, capital volume remains limited
• Capital is contributed by two or more partners. Therefore capital volume may be increased by admitting new partners

Personal Presence

• Its management was to be conducted by one man only.  Therefore personal presence is compulsory. It won’t be managed without personally involving in proprietorship
• This kind of business may be conducted by one or two partners only. Therefore the personal presence of each partner is not necessary

Profit & Loss sharing

• One man enjoys a hundred percent profit from the business and if there is a loss he has to sustain all the losses
• The partnership’s prominent feature is profit and loss are distributed among all the partners of the firm. In case of loss, each partner may and may not feel a heavy burden

Rights Transfer

• A sole proprietor may easily transfer his business without the consent of another person
• One partner, cannot dispose of or transfer his business without the consent of all other partners

Power of Decision Making

• One man is the supreme authority of his business. Therefore he may take any action against any matter promptly
• All the matters are decided by mutual consultation. Therefore matters may not be disposed of promptly

Business Accountability

• As all business is owned by one man he has not to be obeyed any order. So there is no fear of being accountable to anyone
• As partners are accountable to one another, they have to keep an up-to-date record and correct information in connection with their business

Expansion of Business

• There are limited chances for the growth of business due to a lack of capital and managerial abilities
• There are more chances to expand the business volume due to a large number of partners

Business Stability

• There is no possibility of distribution due to one man. So this type of business may be run smoothly
• There is always a risk of dissolution due to misunderstanding and friction among the partners

Business Secrecy

• Secrecy may be maintained in this form of organization on account of man supervision
• As every partner knows about the internal affairs of the business so there are great chances of leakage of the secrecy

Abilities to Work

• One man cannot possess all types of technical and administrative abilities
• As there are a number of partners so the firm may enjoy the combined abilities of several heads

Expenses Distribution

• There are minimum expenses to organize and operate this form of organization
• Partners have to pay legal fees, registration fees, and other expenses. Therefore it is a costly organization comparatively.

Dissolution

• This kind of business may be dissolved easily without any legal formalities
• A partnership may not be dissolved without fulfillment of legal obligations