Sole Proprietorship / Partnership Definition
If any form of business is common whether in rural villages or in metropolitan cities, that is a sole proprietorship. It is the simplest and oldest form of business structures that are universally located in every corner of the world.
A sole proprietorship can be defined as a business concern owned and operated by an individual.
A business venture can be owned either by one person individually or by many people jointly. When a single person owns and runs a business, it is called a sole proprietorship while as when more than one person is involved in the ownership of a business enterprise, it refers to a partnership.
A person who conducts business on his or her own and for himself or herself is known as a sole proprietor or sole trader. He or she exclusively contributes the capital and skills to the business. A sole proprietor is also solely responsible for the business results ( gains or losses ). He or she enjoys all benefits and bears losses independently.
We can simply say that sole proprietorship is one man business who owns it, funds the same, manages and controls all the activities involved in his or her business. A sole proprietorship is also known as sole ownership or sole trading or from layman’s perspective one-man business.
A sole proprietorship is easy to form a business structure. There is no legal complication involved except that a license has to be taken from the local authority. No time, money and efforts are wasted during the commencement of proprietorship based enterprise.
In a sole proprietorship form of business, an owner can maintain absolute secrecy which in other forms is not practicable. A sole proprietor can change the course of business at any time as required by a particular situation.
The outstanding advantage of a sole proprietorship is that there is no special Act which governs the business structure.
What is a Partnership?
One of the important tasks that every entrepreneur needs to do while starting a startup is that of choosing a business structure for his new business. He has various options on the table such as a sole proprietorship, partnership, limited liability company. Here we will explain what does partnership in business with an example.
When two or more individuals agree to conduct a business jointly, it is referred to as a partnership.
The partnership involves the agreement between two or more people. The people who are 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. Both Rashmi and Sonu agree to put in 50% capital each and share profit with the same percentage. This is a simple example of a partnership.
Unlike the sole proprietorship, partnership firm requires more funds and hence enjoys better credit in the market, but, it can’t escape from many disadvantages like lesser public confidence, unlimited liability, dishonesty of partners etc
A firm based on partnership structure, however, enjoys many advantages as well compared to the sole proprietorship. In a partnership type of business, there is promptness in decision making or in other words, decisions can be taken quickly and effectively.
The burden of loss doesn’t fall on one person rather is shared by all partners which are not the case with the sole proprietorship. Partners can easily decide to bring change in business operations.
In short, what you need to remember is that a partnership is one of the business ownership structures managed and controlled by more than two individuals whereas the management of a proprietorship firm is controlled by one person.