There are various forms of business entities. Each form of business has its own advantages and disadvantages. Sole proprietorship and partnership firm do not have any separate legal entity. Further the sole proprietor (in case of a sole proprietorship) and partners (in case of a partnership firm) have unlimited liability.

Seven Important Differences Between Sole Proprietorship And Partnership Firm

Number Of Members

Sole proprietorship is a form of business organization which is established and managed by a single person known as sole proprietor. While a partnership firm is formed by a minimum of two members who are known as partners. In a partnership firm, new partners can be added with the consent of all the partners.

Document

A sole proprietorship firm may not be formed on the basis of any written document. However, a partnership firm can be created with a written agreement (known as a partnership deed) between the partners. Partnership deed may contain all the terms and conditions which have been agreed between the partners including important information such as name of the partnership firm, principal place of business, profit sharing ratio and so on.

Decision Making

In case of Sole Proprietorship, all the decisions critical to the operation of business are taken by the owner only.  However, each and every decision related to the conduct of business by the partnership firm, is taken with the mutual consent of all the partners in the partnership firm.

It is therefore important to note that decisions may be taken more quickly in case of a sole proprietorship in comparison to a partnership firm where a delay in response from one or more partners may delay the process of decision making.

Also Read

Five Main Characterstics Of Sole Proprietorship
Necessary Requirements For Starting Sole Proprietorship Business
Advantages Of Sole Proprietorship

Ownership And Management

In case of sole proprietorship, the ownership and management of business lies with the sole proprietor only. Hence, all the day to day activities are managed by the proprietor himself/herself. However, in case of a partnership firm, ownership and management lies with all the partners which makes them responsible for all the liabilities of the firm.

Profit

In case of sole proprietorship, owner will have exclusive right over any amount of profit earned as a result of business operations. Similarly, owner will have to bear all the losses that may arise from business activities. In case of a partnership firm, profits or losses are generally shared between the partners in a mutually agreed profit or loss sharing ratio.

Risk

In case of sole proprietorship, since all the business activities are managed by the
Proprietor only, he/she assumes all the risks that may arise out of such activities or decisions taken by him/her. While in case of a partnership firm, risk is shared by all the partners. Hence, a sole proprietorship may appear to be a more risky form of business.

Closure

A Sole Proprietorship can be closed any time by the sole proprietor. While a partnership firm can be terminated at will or mutual consent of all the partners. In case of partnership firm, partnership deed may contain specific provisions on the dissolution of the firm.

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