Question

Distinguish between partnership and sole proprietorship

Answer 1

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Sole Propietorships

There are no formalities involved in creating a sole proprietorship that will operate under the owner's name, other than obtaining licenses or permits related to the trade or profession of the owner. For example, a plumber or electrician might have to obtain a license. An in-home day care provider might need to meet certain inspection requirements. A sole proprietor using fictitious name for the business must file an assumed name certificate with the state or local government. The sole proprietor has exclusive control over management decisions and operations, reports all profits and losses on her personal income tax return and is personally liable for business debts and obligations. When the sole proprietor dies or stops doing business, the company no longer exists.

General Partnerships

Two or more people agreeing verbally or in writing to operate a business for profit constitutes a general partnership. If a general partnership operates under a fictitious name, the partners must register it with the state or local government. Each partner has the right to participate in the management of the business and to share equally in profits and losses, however, partners may agree in writing to an unequal allocation of management control and profits and losses. Partners and sole proprietors have the same exposure to personal liability. A creditor of the partnership sues the partners individually and, if successful, may collect from the personal assets of any or all of the partners. Also, like a sole proprietorship, each partner reports his share of business profits and losses on his personal tax return. Absent a partnership agreement that states otherwise, the partnership will end if one partner withdraws or dies.

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Answer 2

PARTNERSHIP

• Governed by :- Partnership firm is governed by Partnership Act 1932.
• Number of members :- Minimum - 2 , Maximum - 50 in ordinary business and 10 in banking business.
• Risk :- Partners jointly bear the risk.
• Basis of formation :- Agreement called partnership deed.

SOLE PROPRIETORSHIP

• Governed by :- There is no separate act governing sole proprietorship.
• Number of members :- Only 1 member, that is owner.
• Risk :- Only proprietor bears all the risks.
• Basis of formation :- No agreement.