How is a partnership different from a sole proprietorship?

Question

How is a partnership different from a sole proprietorship?

Answer 1

A firm is an entity set up by its owners. The owners share capital is a liability of the firm to the shareholders. In the case of a proprietary firm, the entire share capital is owned by a single individual, whereas in the case of a partnership firm, the partners (legally the number of partners are limited to a few as per the laws of the land in different countries) own different portions of the share capital of the firm by agreement or mutual understanding.

A sole proprietorship, proprietorship, or in Britain or Australia sole trader, is a type of business entity which legally has no separate existence from its owner. Hence, the limitations of liability enjoyed by a corporation and limited liability partnerships do not apply to sole proprietors. All debts of the business are debts of the owner. It is a "sole" proprietor in the sense that the owner has no partners. A sole proprietorship essentially means a person does business in his or her own name and there is only one owner. A sole proprietorship is not a corporation; it does not pay corporate taxes, but rather the person who organized the business pays personal income taxes on the profits made, making accounting much simpler. A sole proprietorship need not worry about double taxation like a corporate entity would have to.

A sole proprietor may do business with a trade name other than his or her legal name. In some jurisdictions, for example the United States, the sole proprietor is required to register the trade name or "Doing Business As" with a government agency. This also allows the proprietor to open a business account with banking institutions.

As regards partnership firms, a partnership is a type of business entity in which partners (owners) share with each other the profits or losses of the business undertaking in which all have invested. Partnerships are often favored over corporations for taxation purposes, as the partnership structure does not generally incur a tax on profits before it is distributed to the partners (i.e. there is no dividend tax levied). However, depending on the partnership structure and the jurisdiction in which it operates, owners of a partnership may be exposed to greater personal liability than they would as shareholders of a corporation.