Difference Between Sole Trader and Partnership
There are three main business structures - sole proprietorship or sole trader, partnership and corporation. In this article, we will touch the topic of a sole trader. Here, we will differentiate a sole trader and partnership.
A sole trader is also known as a sole proprietor. Its most basic definition is a business structure that is owned and run by a single individual. This individual invests money, property, assets, skills and labor in order to run the business. He/she may employ workers for the business, but assets and liabilities belong to him/her alone. A sole trader carries the risk of the business as all business contracts will be made under their name. He/she will also undergo unlimited personal liability as debts that the business cannot pay off will be made liable to the individual.
A partnership consists of two or more legal entities that contribute resources, skills and labor for the purpose of profit. Like a sole trader, there is no legal separation between a partnership and its partners. This means that partners will be liable for any debts, losses or legal issues that the partnership will face. A partnership may consist of individuals, corporations, or even other partnerships.
|Definition||A business owned and run by a single individual||A business structure where two or more partners contribute resources, skills and labor to earn profit|
|Number of owners||1||At least 2|
|Owners||Sole trader/sole proprietor||Partners|
|May consist of||Sole trader, employees||Partners, employees|
|Owners’ means of income||Withdrawals from the business; net income from the business||Profit sharing or salary, the latter sometimes preferred by industrial partners|
|Taxation||No business tax; owner is taxed through individual income tax returns||Partners are taxed based on the profit they earn|
|Advantages||Lack of conflict, single source of authority, owner keeps all the profits, simple structure||Ease of startup, split costs, support from other partners, equality in ownership and management|
|Disadvantages||Unlimited liability, no legal distinction, taxed as individual, stress from managing business alone||Unlimited liability, shared accountability for debts, losses and legal matters, possibility of internal conflict|