Question
Clarify the difference between sole proprietorship and a partnership firm.
| Point of difference | Sole proprietorship | Partnership firm |
| Meaning | When a person wishes to establish a business, arranges capital, enjoys the profit and bears the loss all alone it is called a sole proprietorship. | Partnership is a relation between two or more people who have agreed to share the profit and/or loss of the business which is run by all or one on behalf of all. |
| Number of members in management | Sole proprietorship is managed and controlled by only one member i.e. the proprietor. | A partnership firm can have minimum 2 persons and maximum 10 persons a ban king business and maximum 20 for all other businesses. |
| Capital | The entire capital is brought in by the proprietor. | Partners bring the capital as per the partnership deed. |
| Establishment | Anyone can start a proprietorship without any written document/aqreement. | The partners need to establish a partnership either by verbal agreement or written. |
| Decisions | Since this is run by only one person decision making is fast. | More than one person runs partnership and so decision makinq is slow. |
| Profit and loss | The owner wholly enjoys the profit or bears the loss. | Profit or loss is distributed among the partners. |
| Registration | There is no compulsion for registering a proprietorship firm. | Registration is not compulsory but beneficial. |
| Maintenance of secrecy | The business secrets remain intact with the proprietor. | Business secrets are known to all partners and so secrecy is less. |
| Transfer of share. | The proprietor can easily transfer his share to anyone whenever he wishes | A partner can transfer his share only if all the other partners agree. |
| Risk | Only the proprietor bears the business risk. | All the partners bear the business risk. |
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