Explain the key elements of and the differences between — a sole proprietorship, a general partnership, a limited liability partnership, and a corporation
ANSWER
What Is the Difference Between a Sole Proprietorship and a Partnership?
Partnership vs. sole Proprietorship
There are several types of business organizations in which a company can be organized, managed, and operated. Sole Proprietorship is one of the oldest and simplest forms of business and is still widely used worldwide. Only one person owns, manages, and controls the business activities in this type of business. A sole proprietor or sole trader is the person who runs the business.
On the contrary, a partnership is a business organization in which two or more people come together and agree to split the profits and losses of the business they run. The people who run the company are known as partners.
Many people are perplexed by these two business structures. In this article excerpt, you will find a table summarizing the key differences between sole Proprietorship and Partnership.
Content: Comparison Chart of Sole Proprietorship vs. Partnership Definition Key Differences Conclusion
Comparison Table
SOLE PROPRIETORSHIP IS THE BASE FOR COMPARISON
PARTNERSHIP
Meaning
A sole Proprietorship is a type of business organization in which only one person owns and operates the business.
A partnership is a business structure in which two or more people agree to carry on business and share profits and losses.
Governing Law
There is no specific statute.
The Indian Partnership Act of 1932
Owner
Also known as a sole proprietor or sole trader.
Partners are individuals who work together to form a firm.
Incorporation
It is not required.
Only one voluntary minimum member and two maximum members
Only one hundred partners
Liability
Borne solely by the proprietor.
The partners contributed.
Delay in making a decision
Duration
Uncertain
It is dependent on the partners’ desire and capacity.
Profit and loss statements
Profits and losses are solely the responsibility of the proprietor.
Shared in an agreed-upon ratio
Secrecy
Except for the proprietor, no one has access to business secrets.
Every partner has access to business secrets.
Finance
The opportunity to raise capital is limited.
The potential for raising capital is relatively high.
Sole Proprietorship Definition
As the name implies, a sole proprietorship is a type of business entity in which the business is owned and operated by a single person. This business structure is also known as a sole proprietorship. The individual runs a business solely on his capital, knowledge, skills, and expertise. In addition, he has complete control over the company’s operations. Because this type of business does not have a separate legal entity, the business and its owner are inseparable. He retains all profits earned by the owner, and all losses are borne solely by him.
This type of business organization has some advantages, such as the ease with which a sole proprietorship can be formed, the need for minimal record keeping, and the absence of numerous legal formalities. Furthermore, the sole proprietor receives a tax benefit because the tax on his business income is treated as the owner’s income.
Aside from the benefits listed above, we must consider the disadvantages of this type of activity, such as the fact that the liabilities of the business are also the liabilities of the owner. If he cannot pay them from the business, he must pay them from his assets. Furthermore, creditors may sue the proprietor for debts owed to them. There is always uncertainty in the life of a business because if the sole proprietor dies or becomes incompetent, the business will also end. As a result, there is no guarantee that the company will survive.
The Partnership is defined as
The Partnership is a type of business organization in which two or more people agree to carry on business together and decide to split profits and losses in the specified ratio. Members are known individually as partners but collectively as the firm. The Partnership is the unspoken legal relationship between the firm’s partners. The physical form of the Partnership is known as the firm, and the name under which the business is conducted is known as the Firm name.
The main components of the Partnership are an agreement between partners, profit and loss sharing, and a business to be run by all or any of the partners on behalf of the other partners. You may notice in the third component that all of the partners are both the principal and the agent of the other partners. As a result, the mutual agency is regarded as the essence of the Partnership, and if this clause is absent, no partnership exists. The following are the various types of collaboration:
Partnership in general
Particular Collaboration
Willing Partnership Limited Liability Partnership
A partnership firm can have various types of partners, such as an active partner, sleeping partner, nominal partner, incoming partner, outgoing partner, sub-partner, and partner for profits only.
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The Significant Differences Between a Sole Proprietorship and a Partnership
The primary distinctions between a sole proprietorship and a general partnership are as follows:
A sole proprietorship is a business owned and managed by a single person. The Partnership is a business structure in which two or more people run a business and share profits and losses.
The Indian Partnership Act of 1932 governs partnerships, whereas no statute governs sole proprietorships.
The proprietor is the owner of a sole proprietorship business, whereas the partners are the members and legal owners of a partnership firm.
The registration of a sole proprietorship business is not required, but it is up to the partners whether or not to register their firm.
The minimum and maximum number of owners in a sole proprietorship are one. Partnership, on the other hand, requires at least two partners and can have up to 100 partners.
The proprietor is solely liable in a sole proprietorship. In contrast, in a partnership, liability is shared among partners.
Because there is only one owner, quick decisions can be made, whereas, in the case of a partnership, a mutual decision is made after discussing it with all of the partners.
The term of a sole proprietorship is always uncertain because it can end at any time if the owner dies or becomes incompetent at running a business. However, if one of the two partners retires, dies, or becomes insolvent, the Partnership can be dissolved at any time; however, if there are more than two partners, the Partnership can continue at the discretion of the remaining partners.
Secrecy is maintained in sole proprietorship businesses because the secrets are not accessible to anyone other than the proprietor. On the contrary, in a partnership, business secrets are kept private by each partner.
Compared to a sole proprietorship, the possibility of raising finance is more significant in a partnership.
Conclusion
We are all aware that everything has two sides, as in the case of sole Proprietorship and Partnership. The former is very simple to establish, whereas the latter requires the agreement of two or more people. Put another way, there are more hands to work, more capital to invest, and more knowledge to apply, and the business will be fine if one partner is present.
QUESTION
Explain the key elements of and the differences between — a sole proprietorship, a general partnership, a limited liability partnership, and a corporation
Kelly and Karla were roommates at Lynn University and graduated last May. While on a post-graduation celebration trip to Costa Rica, the two women began exploring the idea of opening a restaurant on South Beach in Miami, Florida. Neither has any previous experience in starting or operating a restaurant, but both have extensive connections in the Miami-Dade area because of the many friends they made while attending Lynn. They intend to attract health-minded, college-age students to their new restaurant, The SoBe Health Hut. Kelly and Karla agree that each will invest equally in terms of time and money. However, in addition to these equal contributions, another $100,000 is essential for the restaurant to succeed.
Explain the key elements of and the differences between — a sole proprietorship, a general partnership, a limited liability partnership, and a corporation. (65%)
What type of the above four business entities is best suited for The SoBe Health Hut and why? In your answer, explain who will manage the store and what personal liabilities will Kelly and Karla face and why? (35%)
You shall be graded on your complete and proper explanations, research and language usage, all as noted below. The report must be no more than 1,000 words and is to be submitted in typed, double-spaced form. A report that does not follow this form will be deducted per the grading rubric.