Sole Proprietorship vs. Partnership

Anyone starting a business in the United States has a choice as to how to organize the business. Two of the most common forms of organization are sole proprietorships and partnerships. Each has distinct advantages.

Sole Proprietorships

In a sole proprietorship, one individual owns the business, runs day-to-day operations, makes all the profits and owns all the assets. There is more liability because the law views these kinds of businesses and their owners as the same.

Sole Proprietorship Advantages

Advantages of a sole proprietorship include freedom, ease in establishing the business and the owner's ability to report all earnings on his individual tax return.

Partnerships

In a partnership, two or more people have an equal stake in a business. Partnerships are similar to sole proprietorships in that the law does not separate the business from the partners.

Partnership Considerations

All partnerships must have a written agreement that spells out how profits are distributed, conflicts resolved and future partners accepted into the business. The agreement also should spell out how decisions are made and how the business would be dissolved.

Partnership Advantages

The advantages of a partnership include increased access to working capital because there is more than one owner, ease in establishing the business, access to the skills of more than one person and each owner's ability report profits on his individual tax return.

References

• Residual Rewards: Partnerships
• Web Pro News: Sole Proprietorship