Starting Business With Partners

The Difference Between a Sole Proprietorship and a Partnership

Written by Chukwuma Asala for Gaebler Ventures

What are the pros and cons of a partnership and sole-proprietorship? This article should help give you some answers.

There are a number of different types of business relationships you can choose to establish your business enterprise.

A sole proprietorship is a business entity made up of just one owner. The owner however may be either a single individual or an actual corporation depending on how they list their business. A partnership on the other is a business owned by one or more individuals or corporations.

In the event that the business fails or goes under, each partner is potentially liable for the debt of the partnership. The largest type of business alliance is a corporation. A corporation is a legal entity that exists separately from its shareholders. It is most often referred to as a limited liability company. Let's quickly examine some of the pros and cons of being in a partnership versus a sole-proprietorship.

An obvious advantage of a sole-proprietorship is that they are very easy to form. There are very few restrictions and you only need to file a DBA with your local city or county clerk's office to get your license. You also are the sole beneficiary of all the profits generated which makes sense since you also incur all the risk of running the business. Filing taxes is also a lot simpler because you don't have to separate a tax return for your business.

As mentioned earlier the biggest disadvantage is risk. You are responsible for all debt obligations. Usually the assets of the person can be used as collateral in worst case scenarios. Also longevity is an issue because if you are not around or healthy or there is a sudden death the business usually will not survive. It is equally difficult to raise operating cash or long-term

A partnership enables the burdens of the business to be shared because it involves more than one person. This also helps when dealing with challenges because often one person's view is totally different from another person which brings more perspective. A partnership also enables decision making to be more effective because of the same point on having different people with different views all approaching the same thing.

The biggest challenge of a partnership is when the differences in the way the partners view the goals of the corporation. Some partners may be more ambitious than others while some partners may be a little more laid back in their approach which would be tough for both parties to work with.

Chukwuma Asala is an international student from Nigeria who is studying to earn an MBA from the State University of New York in Albany. He has analyzed more than 20 industry case studies throughout his education thus far, and hopes to bring some of his business knowledge to

Share this article

Additional Resources for Entrepreneurs

Lists of Venture Capital and Private Equity Firms

Franchise Opportunities


Business Glossary


Conversation Board

We greatly appreciate any advice you can provide on this topic. Please contribute your insights on this topic so others can benefit.

  • GALLUP AUTOMOTIVE REPAIR posted on 11/27/2010
    Where can i get an serious investor to partner up with us? We are a small AUTOMOTIVE SHOP that is growing fast. But we can not keep up with the demands of the fleet accounts. They require the job to be done first before we get paid. Some jobs are over 2 to 3 thousand dollars. This is where we need help. Finance the job then get paid 2 to 4 weeks later. Any advice would be appreciated.

Leave a Reply

Questions, Comments, Tips, and Advice

Email will not be posted or shared
Code Image - Please contact webmaster if you have problems seeing this image code

Problem Viewing Image? Load New Code