Differentiate between Sole Trading and Partnership
There are various forms of business organization in which the business entity can be organized, managed and operated. Sole Proprietorship is one of the oldest and easiest forms, which is still prevalent in the world. In this type of business, only one person owns, manages and controls the business activities. The individual who runs the business is known as a sole proprietor or sole trader.
On the contrary, Partnership is that form of business organization two or more individuals come together and agree to share profit and losses of the business, which is carried on by them. The individuals who run the business are called partners.
| Basis of Difference | Sole Proprietorship | Partnership |
|---|---|---|
| 1. Number of members | A sole proprietorship is established and managed by a single proprietor | A partnership business is established and managed by minimum 2 or more than 2 person. According to partnership act 2020, minimum partners should be 2 and maximum it is not mentioned. |
| 2. Agreement | It is not necessary to come into an agreement with other persons for sole proprietorship business | An oral or written agreement among the partners about the various term and conditions of business is essential in partnership firm |
| 3. Investment of Capital | All the partners contribute towards capital of the firm. The partners pool their resources to run the business efficiently. However, there is no bar on a person becoming a partner without bringing any capital. | Only the resources of one person are used in the business. He may suffer from shortage of capital because the resources of one person will generally be limited. |
| 4. Making Decision | The sole proprietor is all in all of the concern and has full control over the business. He can take decision promptly on the basis of situation. | The partners take all the decision of the firm on the basis of mutual consent. Thus, it requires more time for making any important decision. |
| 5. Maintenance of Secrecy | The secrets of the business are in the knowledge of all the partners; so there is a fear of leaking them out. | There is a complete secrecy in the business because the owner does not share the secrets with anybody else. |
| 6. Management | All partners have equal rights and all of them can participate in the management. They can bin the business by their acts. | This business is controlled by one person only. His order is a law and he is the final authority in the concern. |
| 7. Risk Bearing | The business risk is shared by all the partners in proportion of their shares. | The whole risk is shared by the sole-trader. |
| 8. Share of Profit | Proprietor is solely responsible for the profits & losses. | Shared in agreed ratio |
| 9. Registration | In Nepal. a sole proprietorship registered in the concern department of Government according to "Private Firm Registration Act, 2014" | A Partnership firm is registered in the concern department of Government according to the Partnership Act 2020. |
| 10. Introduction of Changes | It, is in a better position to introduce changes than the partnership, because of one person decision. | It is less capable of introducing changes than the sole proprietorship, because of the consent of the entire partner is necessary. |
