The sole proprietorship and the partnership have many things in common. Both of them are considered the first step of forming a limited liability company or a corporation according to the Ins and Outs of partner ship. They are considered the first step because they are very simple to form, they need no papers, and the procedures of operating is very easy all they have to do is to have a good idea, not to much capital and register a taxation permission as said in the Business Structure and also Joseph & Joseph. Which makes it much safer and less risk, if it fails the owner does not loss much.
It also gives the young people the opportunity to start their own business. Another matching advantage is that both of them are not charged as a firm, they are levied as individuals (the corporation pays double taxation) on the words of Joseph & Joseph. Further more they are effortless to put in order and direct because they are small according to the sole proprietor magazine, which means that they do not need a large number of employees, which additionally provides them the opportunity of personal relationship with the customers.
The last benefit in common is the maintenance of the entire earnings; this advantage is a source of encouragement for the owners to exert more effort to succeed in their work (David L. Scott). this is because the owners keep all the profit to them selves, which is considered as a compensation for the owners, as they are not considered as employees, which does not give them the right to take salary (sole proprietor magazine). Even though they have advantages in common they have mutual disadvantages.
The major inadequate feature is that both of them have unlimited liability, which means that the owner (general partners) are personally responsible for all the expenses and the debts of the company even by their personal belongings, which brings up that they have no separate legal entity (Meigs Roberts et al). There are some difficulties, despite the fact that of being easy to form. One of them is that forming a business makes it more complicated to pay income taxes more than the normal individuals (Hassle Free and Sole proprietor magazine).
On the other hand, they can lower the lost rate before determining the personal tax income and are offered favorable taxation, and they also do not have to pay minimum taxes according to sole proprietor magazine and the Ins and Outs of partnership. The other difficulty is that both of them in addition of being very flexible, they do not continue if the owner dies according to Joseph & Joseph. On the other hand, both of them have a lot of differences.
The main diversity is that the sole proprietorship has one owner and the partnership has two or more partners who share all the work and liability (except if the partner was a limited liability partner) and profit and loss (B. J. Adelson et al and Joseph & Joseph). The sole proprietorship has many advantages over the partnership. In the beginning the sole proprietorship is one way to be independent (David L. Scott), by making his own decisions, he does not take orders from any one and he takes his decision without being afraid to be punished, and also when he succeeds he keeps all the profit to himself.
Moreover, a sole proprietorship is instant to form and the owner does not pay unemployment tax on himself (Basics of Sole Proprietorship). Further more the sole proprietorship is more flexible that the partnership, the owner can form or diminish the organization any time without having to go back to anyone. What's more is that the sole proprietorship is an enterprise (a small market business), which means that it needs less number of employees which makes it simple to control and less managerial fees (David L.
Scott). Another advantage of being a sole proprietor over being a partnership, is that the sole proprietorship provides its owners with more secrecy that any other form of business because the government does not force them expose their working technique of success to their challengers, although they have to give an account of their private tariff papers, it only goes to the income tax government department (David L. Scott). As for the last advantage the sole proprietorship has over the partnership.
the dissolution of the sole proprietorship is much easier. If the business fails the owner can easily close discontinue working as easy as he started working (David L. Scott). As for the partnership it is the only form of business that can be created verbally (Ins and Outs of partnership). The partnership also has a lot of advantages that are not in the sole proprietorship. The first one is the availability of talent and money.
The partnership combines them to gather which gives them more opportunity to succeed (small business development center). Moreover, the banks are ready to give them long term loans (Scott) as having partner is safer than working alone, as the partner is safer in number and can pay the loan by many ways (Adelson). What makes the partnership more capable of paying the loan is that the general partner has a motive to work hard and succeed (Adelson) as he is personally responsible for the debts of the company (Scott).
This brings up that he has personal interest. Another personal interest is that he doesn't pay unemployment tax on himself (Basics of Sole proprietorship). Furthermore, the partners have complementary skills (Adelson) as the partner has someone else to complete his managerial weakness (Scott), because there is no one perfect, the partners complete each others' flaws to be successful. The partnership is also safer in taking the decision (Scott).
Although the partner has lack of continuity like the sole proprietorship, if one of the partners withdraw or dies, if it was stated in the partnership agreement that if that happened the remaining partners can buy or sell the withdrawing partner, so they continue working (Scott). Although both the sole proprietorship and the partnership have many differences in their advantages, they also have difference in their disadvantages.
In the sole proprietorship it is difficult to create funds, as they cannot take the money from anyone easily and it must be in the form of a loan (Small Business Development Center), as the main idea of being a sole proprietorship is to be one owner (sole proprietor magazine), which also means that the owner cannot sell shares in the company (sole proprietorship-wikipedia) and he also cannot sell interest to the person who gave him the money (Basics of sole proprietorship) and the lack of continuity also makes it harder to raise the capital(Byrne) because when the owner dies, the giver losses all his money (Joseph and Joseph).
Another, disadvantage in difference, is that the sole proprietor cannot employ the well experienced staff (Scott). As they prefer to work for the big companies as they guaranty that they are safe and get a higher salary for a long time, also the lack of continuity discourages the employees to work for them (Scott). As a result of that the have limited management skills as one person cannot know everything about the skills of management at the same time and be efficient in all of them (Scott). The partnership also has disadvantages in difference.
The first one, is that one partner can present the whole company in front of the law and the investors. Which may make all of them fall in trouble because of one partner (Small Business development Center). The conflict which is the disagreement between the partners. This may destroy the company and stop it from growing and succeeding, as they will focus more on their relationship and forget the business itself (PENDECTA magazine) so they have to trust each other more and work as a team (Scott).
The last disadvantage is the frozen investment, which means that although it is easy to complete even if a partner withdraw, the other partners may not agree to buy his shares and he will be stuck with them (Scott). Finally, even business is different from the other (Sole proprietor magazine), and every person should be able to choose the best one for him, according to his personality and his working habits.
This means that if he likes to share responsibility and have some one to make the decision with him to be sure that he is on the right track and wants to be able to relax and have some one work instead of him, he should have a partner. If he is the opposite and likes to be independent he should establish a sole proprietorship. Whatever, he chooses the best thing to do is to work hard and do every thing to succeed.