What Are the Main Differences Between a Sole Proprietorship & Partnership?

If you are starting your own business, you may be wondering about the differences between a sole proprietorship vs partnership. When you go into business as an individual, you immediately start a sole proprietorship. If you and at least one other person start conducting business together, you create a partnership. Here are some of the core differences between these two entities.

What Is a Sole Proprietorship

Here’s how a sole proprietorship operates:

  • Decision-Making: There is one owner who controls all operations and finances.
  • Liability: The sole proprietor is personally liable for lawsuits, debts, and obligations.
  • Conflict: The single owner does not encounter conflicts in a sole proprietorship.
  • Taxes: Profits and losses are reported on the owner’s personal tax return.

If you’re interested in forming a sole proprietorship, start filling out the sole proprietorship application.

What Is a Partnership?

This is how a partnership is run:

  • Decision-Making: A shared input that impacts ultimate decisions. The decision-making power of each partner should be outlined in a partnership agreement.
  • Liability: All partners share liability for lawsuits, debts, and obligations.
  • Conflict: There is a chance of disputes among partners. Partnership disagreements may result in mediation, litigation, or arbitration.
  • Taxes: Partnerships must report profits and losses to the IRS. The IRS taxes the profits as personal income for each partner.

Submitting a partnership application online takes just a few minutes.

Choose Your Business Entity

As an entrepreneur, you may not know what business structure to create. The type of legal entity you form will determine the daily operations, liability, and tax obligations of your business. Hopefully, this comparison of sole proprietorships and partnerships will help you figure out what type of business you want to start.

No matter what kind of business you choose to run, you may need a federal tax ID number for opening bank accounts, hiring employees, and paying taxes. Learn more aboutobtaining a tax ID number for your business here.

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