What is a Sole Trading Concern/Sole Proprietorship Firm?
Sole Trading Concern is an informal type of Business Organization which is owned, managed and controlled by an individual.
What is a Partnership Firm?
A partnership firm is a form of business organization which has more than one owners. It is owned and managed by more than one person. All the owners share profits and losses and their liability is unlimited. The owners are called partners.
Limitations of Partnership over Sole Proprietorship:
- Disputes among the Partners may lead to loss of the goodwill or even closure of the business. Sole Proprietorship has only one owner. Hence, the question of a dispute doesn’t arise
-The risk of Implied Authority: Bad Decision taken by one partner may result in a loss to all the partners. So, as an owner, you may have to suffer a loss due to a bad decision taken by some other partner. Such a risk is not there in case of the sole proprietorship as it has only one owner.
- No direct relation between efforts and rewards: In the case of a sole proprietorship, there is a direct relationship between efforts and rewards. More the efforts more will be the rewards for the owner as the entire profit belongs to the sole proprietor. This is not the case in case of Partnership. In case of Partnership, profit is shared among all the partners and hence there can be low motivation to work hard.
-Relatively difficult formation: Formation of Sole Proprietorship is relatively easy. It doesn't require any agreement/registration. In case of Partnership, you need a partnership deed/partnership agreement.
-Low Secrecy: Partnership has a relatively low level of secrecy as compared to sole proprietorship as there are multiple owners. In case of a sole proprietorship, since there is only one owner, business secrets are restricted to only one person
-Relatively slow decision making: In case of a sole proprietorship, decisions can be made quickly as the sole trader doesn't have to consult anyone before taking any decision. In case of a partnership, since there are multiple owners, decision making is relatively slow as important decisions are generally taken after discussion among partners.
-Flexibility In Operations. A sole trader can keep on changing his plans quickly as per the business environment as decision making is faster. Partnership has relatively less flexibility in operation as decision making is slow and all partners must agree while making important decisions.
- Government Control: Sole Proprietorship has relatively limited government control. There is no specific law to govern the operation of sole trading concern. However, Partnership is governed by the Indian Partnership Act, 1932.
Sole Trading Concern is an informal type of Business Organization which is owned, managed and controlled by an individual.
What is a Partnership Firm?
A partnership firm is a form of business organization which has more than one owners. It is owned and managed by more than one person. All the owners share profits and losses and their liability is unlimited. The owners are called partners.
Limitations of Partnership over Sole Proprietorship:
- Disputes among the Partners may lead to loss of the goodwill or even closure of the business. Sole Proprietorship has only one owner. Hence, the question of a dispute doesn’t arise
-The risk of Implied Authority: Bad Decision taken by one partner may result in a loss to all the partners. So, as an owner, you may have to suffer a loss due to a bad decision taken by some other partner. Such a risk is not there in case of the sole proprietorship as it has only one owner.
- No direct relation between efforts and rewards: In the case of a sole proprietorship, there is a direct relationship between efforts and rewards. More the efforts more will be the rewards for the owner as the entire profit belongs to the sole proprietor. This is not the case in case of Partnership. In case of Partnership, profit is shared among all the partners and hence there can be low motivation to work hard.
-Relatively difficult formation: Formation of Sole Proprietorship is relatively easy. It doesn't require any agreement/registration. In case of Partnership, you need a partnership deed/partnership agreement.
-Low Secrecy: Partnership has a relatively low level of secrecy as compared to sole proprietorship as there are multiple owners. In case of a sole proprietorship, since there is only one owner, business secrets are restricted to only one person
-Relatively slow decision making: In case of a sole proprietorship, decisions can be made quickly as the sole trader doesn't have to consult anyone before taking any decision. In case of a partnership, since there are multiple owners, decision making is relatively slow as important decisions are generally taken after discussion among partners.
-Flexibility In Operations. A sole trader can keep on changing his plans quickly as per the business environment as decision making is faster. Partnership has relatively less flexibility in operation as decision making is slow and all partners must agree while making important decisions.
- Government Control: Sole Proprietorship has relatively limited government control. There is no specific law to govern the operation of sole trading concern. However, Partnership is governed by the Indian Partnership Act, 1932.
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