There are different types of companies, including private limited companies with limited liability for shareholders, public limited companies traded on stock exchanges, and one-person companies for single entrepreneurs. Additionally, partnerships involve joint business ventures, while limited liability partnerships (LLPs) combine features of partnerships and companies, offering limited liability protection.
What is partnership?
A partnership is a business arrangement where two or more individuals or firms collaborate to operate a business, share profits, and manage responsibilities. Partners create a partnership deed, outlining terms such as profit sharing, duties, and liabilities. This structure enables joint decision-making and shared financial investment, fostering business growth and mutual benefits.
What is sole proprietorship?
A sole proprietorship is a business owned and operated by a single individual. The owner has complete control, manages all assets, and is personally responsible for all liabilities. This simple and straightforward structure allows the sole proprietor to retain all profits but also bears the risk of personal liability for business debts and obligations.
Comparative table: Sole proprietorship and partnership
| Feature | Sole proprietorship | Partnership |
| Ownership | Single individual | Two or more individuals or firms |
| Control | Complete control by the owner | Shared control among partners |
| Profit sharing | Owner retains all profits | Profits shared as per partnership deed |
| Liability | Unlimited personal liability | Shared liability among partners |
| Decision making | Quick, owner makes all decisions | Collaborative decision-making |
| Formation | Easy, minimal legal formalities | Requires a partnership deed |
| Continuity | Dependent on the owner's presence | Can continue despite changes in partners |
| Taxation | Taxed as the personal income of the owner | Each partner taxed individually on their share |
5 key differences sole proprietorship and partnership
- Ownership: A sole proprietorship is owned by one individual, while a partnership involves two or more individuals or firms.
- Control: The sole proprietor has complete control; partners share control.
- Liability: Sole proprietorship has unlimited personal liability; partnerships share liability.
- Profit Sharing: The sole proprietor keeps all profits; partners share profits
- Decision Making: The sole proprietor makes all decisions; partners collaborate on decisions.
Ownership
In a sole proprietorship, the business is owned by a single individual who has full control and responsibility. In a partnership, ownership is shared among two or more individuals or entities, each contributing resources and sharing the business's operations, responsibilities, and profits as per the agreed terms in the partnership deed.
Liability
Sole proprietors bear unlimited personal liability for all business debts and obligations, risking personal assets. In contrast, partnerships share liability among partners. Each partner is responsible for the firm's debts and may be personally liable, although some partnership types, like limited partnerships, offer limited liability to certain partners.
Profit sharing
In a sole proprietorship, the owner retains all profits generated by the business. In a partnership, profits are distributed among partners based on the terms outlined in the partnership deed. This agreement specifies each partner’s share, reflecting their investment, roles, and contributions to the business.
Decision making
Sole proprietors have complete autonomy in making business decisions, allowing for quick and unilateral actions. In partnerships, decision-making is collaborative, requiring agreement among partners. This can lead to more comprehensive and balanced decisions but may also slow down the process due to the need for consensus.
Taxation
Sole proprietors report business income and expenses on their personal tax returns, with profits taxed as personal income. Partnerships do not pay income tax; instead, profits and losses pass through to partners, who report them on their personal tax returns. Each partner's share of income is taxed individually.
Legal formalities
Sole proprietorships have minimal legal formalities, often requiring only local business permits and licenses. Partnerships, however, require a partnership deed, outlining the terms of the business relationship. This deed is a legal document that details profit-sharing, responsibilities, and other operational aspects, adding a layer of legal complexity.
Conclusion
In conclusion, sole proprietorships offer simplicity and full control but come with personal liability and limited resources. Partnerships provide shared responsibility, diversified skills, and easier access to business loans due to combined creditworthiness.
Here are some of the key advantages of Bajaj Finserv Business Loan:
- Rapid disbursement: Funds can be received in as little as 48 hours of approval, allowing businesses to respond promptly to opportunities and needs.
- Simplified application process: Online applications streamline the process, reducing paperwork and saving time.
- High loan amount: Businesses can borrow funds up to Rs. 80 lakh, depending on their needs and qualification.
- No collateral required: You do not have to pledge any collateral to get our business loan, which is beneficial for small businesses without substantial assets.
- Competitive interest rates: The interest rates for our business loans range from 14 to 26 per annum.
- Flexible repayment schedules: Repayment terms can be tailored to align with the business's cash flow, helping manage finances without strain. You can choose a tenure ranging from 12 months to 96 months.
