Nov 24, 2019 11:23 PM EST

5 Differences Between Sole Proprietorship and Partnership

5 Differences Between Sole Proprietorship and Partnership

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When setting up a new business you have to make several big decisions. One of them is whether you want it to be a sole proprietorship or a partnership. 

If this question has been bothering you, then you have come to the right place as below I have discussed in detail, who can form a sole proprietorship and a partnership and the key differences between them. Take them into account before you make your decision...

The number of owners: 

The basic difference between a sole proprietorship and a partnership is the number of owners there will be. As the word 'sole' in sole proprietorship indicates, it is something you go for when you are the only owner in the company. While a partnership is formed when there are two or more owners in the company. 

Even if one partner owns more of a company than the other partners, you will still need to go into a partnership. And make sure you have a proper contract that details the share of the company each partner owns. 

The people liable:

As a sole proprietorship is owned by a single person, this single person will be liable for any lawsuits, debts or damages. While in a partnership this liability will be shared among the different partners. The partners are also liable for each other's mistakes. The only way to protect oneself or all the partners within a company is by forming a corporation or LLC. This will make the company responsible and not the partners. So, if you or your partners want to protect your personal assets, forming a corporation might be a better option. 

Decision makers:

At a sole proprietorship, as you are the sole owner, yours is the only decision that matters. You can do as you please. 

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But at a partnership, decisions have to be formed collectively based on what all the partners want. So, if you like to make decisions on your own you can form a sole proprietorship. You can always take the advice of your employees and mentors, but the final decision will be up to you. 

Formation and contracts:

When forming a partnership, you either need to have an oral contract or a written one. Of course, it would always be better to have a written one to stay on the safe side. 

As you never know if your relationship with your partners will remain just as amicable as it is now. But when forming a sole proprietorship, you don't need a contract. Although it would be wise to register your business. As it can provide several benefits in the long run. 

Profit share:

When you run a partnership, you and your partners will need to share the profits. You will also need to have a plan and strategy on what to do with all the revenue you earn. This is whether if you should reinvest them into the business or divide them amongst yourself. But at a sole proprietorship, there's no need to make the decision. You can actually directly accept payments into your personal bank account. But it would be better to maintain a separate bank and PayPal accounts for your business as it will help keep things organized. 


These are the key differences between a sole proprietorship and a partnership. From the above differences, it might seem like going with a sole proprietorship should be the obvious choice, but a partnership has its own benefits too. Your partners might seem like a burden who will be in your way taking some of your profits from you and blocking your decisions. But at the same time, they will help unburden some of the responsibilities and reduce the stress on you. 

Each partner will bring in their own set of expertise and this can help you make better decisions. Also, they will be able to bring in more work which can boost revenue. 

So, instead of instinctively going for a sole proprietorship because it seems simpler and straightforward, you should give this a lot of thought. If you know someone you trust and are certain they will be loyal to you, you could give a partnership a try. And if things don't work out you can always dissolve the partnership and run your own sole proprietorship.  

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