Sole Proprietorships Vs. General Partnerships
Sole proprietorships are the most common type of business found in the U.S., according to the Reference For Business website. A sole proprietorship is the easiest type of business to form, since formation documents are not required to form a sole proprietorship. Partnership businesses are the easiest co-owned type of business to form and operate, as explained by the Nolo website.
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Size
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A sole proprietorship consists of a single business owner. If a sole proprietorship admits additional owners in the business, the business will no longer be classified as a sole proprietorship. A partnership business must contain at least two individuals that have agreed to go into business together. Unlike a sole proprietorship, a partnership business may have an unlimited number of partners participating in the ownership of the company.
Control
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One of the differences between a sole proprietorship and a partnership is the issue of control. Sole proprietors have full control over every aspect of the business. A sole proprietor does not have to hold a meeting to get another partner's opinion. This allows a sole proprietor to react faster to trends in the marketplace in comparison to a partnership. With a sole proprietorship, decision-making falls in the hands of a single person. With a partnership, at least two individuals will be responsible for making decisions for the company. This feature may enable partners to bounce ideas off one another, and combine their knowledge and expertise in such a way that results in good decision making.
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Considerations
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Sole proprietors can do whatever they want with the company's profits. A sole proprietors may elect to reinvest money into the business, or withdraw funds at her leisure. A sole proprietor is not required by law to separate her personal money from cash assets gained while operating the business. Sole proprietors can take money out of the company to meet their personal debts and obligations. This is not true of a partnership business, where the partners of the company divide profits and losses according to each partner's ownership interest in the business. A partnership agreement may provide information regarding how partners of the business have chosen to divide the company's profits. For example, a partner may own 45 percent of the business, but may receive 50 percent of the company's profits if the other partners of the company agree to such a measure.
Significance
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Partners and sole proprietors have unlimited liability for business debts, liabilities, lawsuits and other business-related obligations. Sole proprietors are personally liable for their negligent acts, and for any losses incurred while operating a business. Partners in a partnership business are personally liable for the negligent acts of other partners. If a partner makes a bad business decision, the personal assets of the other partners may be at risk. This is not true of a sole proprietorship, since there are not any partners or co-owners in a sole proprietorship.
Life
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A sole proprietorship will automatically cease to exist when the business owner dies. Also, sole proprietorships end when a business owner decides to retire or sell the business. Partnership businesses may continue to operate despite a partner's death or withdrawal, if the company's partnership agreement contains provisions for buying out a deceased or withdrawing partner.
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