Sole Proprietorship vs. Partnership: Know the Difference
By Shumaila Saeed || Published on January 15, 2024
Sole Proprietorship is a single individual owns and operates the business. Partnership is a business owned and managed by two or more individuals sharing profits and liabilities.
Key Differences
In a sole proprietorship, one individual owns the entire business, making all decisions alone. Conversely, a partnership involves two or more people who share ownership, decisions, and responsibilities.
Shumaila Saeed
Jan 15, 2024
A sole proprietor faces unlimited personal liability for business debts and obligations. In contrast, partners in a partnership share the liabilities, which can either be unlimited or limited depending on the partnership type.
Shumaila Saeed
Jan 15, 2024
In a sole proprietorship, the owner keeps all profits. In a partnership, profits are shared among partners according to an agreed-upon ratio or partnership agreement.
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Jan 15, 2024
A sole proprietorship's income is taxed as personal income of the owner. A partnership doesn't pay taxes itself; instead, profits or losses are passed through to partners and reported on their personal tax returns.
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Jan 15, 2024
Decision-making in a sole proprietorship is straightforward as one person makes all decisions. In a partnership, decisions are made jointly, requiring consensus or majority agreement.
Shumaila Saeed
Jan 15, 2024
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Comparison Chart
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Sole Proprietorship and Partnership Definitions
Sole Proprietorship
A business structure where the individual enjoys complete control and authority.
As a sole proprietorship, her online boutique mirrors her unique fashion sense.
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Partnership
A legal form of business operation between two or more individuals who share management and profits.
Their joint venture in a café, a partnership, shares risks and rewards equally.
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Sole Proprietorship
A business entity where the owner is personally liable for debts.
His coffee shop, a sole proprietorship, allows him to be his own boss.
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Partnership
A business practice in which two or more people work together for a common purpose.
Their consultancy firm operates as a partnership, leveraging their combined experience.
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Sole Proprietorship
A business owned and run by one individual without any formal legal entity.
Jane's bakery, a sole proprietorship, reflects her personal baking style.
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Partnership
A collaborative agreement where parties agree to work together to achieve a specific goal.
The partnership between the two artists led to a successful gallery opening.
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Sole Proprietorship
A type of enterprise operated by one person, responsible for all financial aspects.
His landscaping service, a sole proprietorship, grew from his passion for gardening.
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Sole Proprietorship
An unincorporated business with a single owner.
Her freelance graphic design business is a sole proprietorship.
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Partnership
A business entity in which two or more co-owners contribute resources, share in profits and losses, and are individually liable for the entity's actions.
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Partnership
A relationship between individuals or groups that is characterized by mutual cooperation and responsibility, as for the achievement of a specified goal
Neighborhood groups formed a partnership to fight crime.
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Partnership
An association of two or more people to conduct a business
Forge a partnership
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Partnership
(cricket) The period when two specific batsmen are batting, from the fall of one wicket until the fall of the next; the number of runs scored during this period,
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Partnership
The state or condition of being a partner; as, to be in partnership with another; to have partnership in the fortunes of a family or a state.
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Partnership
A division or sharing among partners; joint possession or interest.
Rome, that ne'er knew three lordly heads before,First fell by fatal partnership of power.
He does possession keep,And is too wise to hazard partnership.
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Partnership
An alliance or association of persons for the prosecution of an undertaking or a business on joint account; a company; a firm; a house; as, to form a partnership.
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Partnership
A contract between two or more competent persons for joining together their money, goods, labor, and skill, or any or all of them, under an understanding that there shall be a communion of profit between them, and for the purpose of carrying on a legal trade, business, or adventure.
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Partnership
A contract between two or more persons who agree to pool talent and money and share profits or losses
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Partnership
A business structure where two or more individuals manage and operate a business in accordance with the terms and objectives set out in a Partnership Deed.
Their law firm, a partnership, combines their legal expertise effectively.
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Partnership
An arrangement where parties, known as partners, agree to cooperate to advance their mutual interests.
The tech startup, formed as a partnership, benefits from their diverse skill sets.
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Repeatedly Asked Queries
What is a Sole Proprietorship?
A business owned and operated by a single individual.
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Jan 15, 2024
What is the liability structure in a Partnership?
Partners share liabilities, which can be unlimited or limited depending on the partnership agreement.
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What defines a Partnership?
A business entity where two or more individuals share ownership and responsibilities.
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How is liability handled in a Sole Proprietorship?
The owner has unlimited personal liability for business debts.
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Jan 15, 2024
What are the tax implications for a Sole Proprietorship?
Profits or losses are taxed as the personal income of the owner.
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How is a Partnership taxed?
It's a pass-through entity; profits or losses are reported on partners' personal tax returns.
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Jan 15, 2024
How does profit sharing work in a Partnership?
Profits are shared among partners according to the partnership agreement.
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Jan 15, 2024
How are profits distributed in a Sole Proprietorship?
All profits go to the sole proprietor.
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Jan 15, 2024
Is it easy to transfer ownership in a Sole Proprietorship?
Transfer of ownership can be challenging as it's tied to the individual.
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Jan 15, 2024
How are decisions made in a Partnership?
Decisions are made jointly by the partners.
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Jan 15, 2024
Can a Sole Proprietorship have employees?
Yes, sole proprietors can hire employees.
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Jan 15, 2024
How is ownership transferred in a Partnership?
Transfer of ownership requires agreement among partners and may be guided by the partnership deed.
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Jan 15, 2024
Who makes decisions in a Sole Proprietorship?
The sole owner makes all business decisions.
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Jan 15, 2024
Can partners in a Partnership be employees?
Generally, partners are not considered employees but active business operators.
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Jan 15, 2024
Is a Partnership a good choice for businesses requiring diverse skills and investment?
Yes, as it allows pooling of skills and resources.
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Jan 15, 2024
Can a Sole Proprietorship become a Partnership?
Yes, the sole proprietor can enter into a partnership agreement with one or more individuals.
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Jan 15, 2024
Are start-up costs higher in a Partnership?
They can be higher due to legal agreements and more complex structuring.
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Jan 15, 2024
What are the start-up costs for a Sole Proprietorship?
Typically lower, as fewer legal formalities are involved.
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Jan 15, 2024
Is a Sole Proprietorship suitable for high-risk businesses?
Not ideal due to the unlimited personal liability of the owner.
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Jan 15, 2024
Can a Partnership be converted into a Sole Proprietorship?
Yes, if all but one partner leave or agree to transfer their interest to a single individual.
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Jan 15, 2024
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About Author
Written by
Shumaila SaeedShumaila Saeed, an expert content creator with 6 years of experience, specializes in distilling complex topics into easily digestible comparisons, shining a light on the nuances that both inform and educate readers with clarity and accuracy.
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