If any form of business is typical in rural villages or metropolitan cities, that is a sole proprietorship. It is the simplest and oldest business structure, universally located in every corner of the world.
A sole proprietorship is a business concern owned and operated by an individual.
A business venture can be owned by one person or by many people. When a single person owns and runs a business, it is called a sole proprietorship, while when more than one person is involved in the ownership of a business enterprise, it refers to a partnership.
A person who conducts business independently and for themselves is known as a sole proprietor or trader. They exclusively contribute capital and skills to the company. A sole proprietor is solely responsible for the business results ( gains or losses ). They enjoy all benefits and bear losses independently.
We can say that a sole proprietorship is a male business that owns it, funds the same, and manages and controls all the activities involved in the industry. A sole proprietorship is also known as sole ownership or trading or, from a layman’s perspective, a one-person company.
A sole proprietorship makes it easy to form a business structure. No legal complication is involved except that a license must be taken from the local authority. No time, money or effort is wasted during the commencement of a proprietorship-based enterprise.
In a sole proprietorship business, an owner can maintain absolute secrecy, which in other states is not practicable. A sole proprietor can change the course of business at any time as required by a particular situation.
A sole proprietorship’s outstanding advantage is that no particular Act governs the business structure.
What is a Partnership?
One of the essential tasks that every entrepreneur needs to do while starting a startup is choosing a business structure for his new business. He has various options, such as a sole proprietorship, partnership, and limited liability company. Here, we will explain collaboration in the industry with an example.
When two or more individuals agree to conduct a business jointly, it is referred to as a partnership.
The partnership involves an agreement between two or more people. The people involved in the partnership form of business enterprise agree to share profits and bear the losses jointly.
Example: Suppose two friends, Rashmi and Sonu, have decided to start and run a restaurant in their town jointly with an amount of 2 lakh Rupees. Rashmi and Sonu agreed to put in 50% capital each and share the profit with the same percentage. This is a simple example of a partnership.
Unlike the sole proprietorship, a partnership firm requires more funds and hence enjoys better credit in the market. Still, it can’t escape from disadvantages like lesser public confidence, unlimited liability, dishonesty of partners, etc.
However, a firm based on a partnership structure enjoys many advantages compared to a sole proprietorship. In a partnership type of business, there is promptness in decision-making; in other words, decisions can be taken quickly and effectively.
The burden of loss doesn’t fall on one person; instead, it is shared by all partners, which is not the case with the sole proprietorship. Partners can easily decide to bring change in business operations.
In short, you need to remember that a partnership is one of the business ownership structures managed and controlled by more than two individuals. In contrast, one person holds the management of a proprietorship firm.