The main points of distinction between partnership and sole trader are as follows:
1. Number of members:
Sole proprietorship is owned and controlled by one person. The number of partners in a firm can be up to ten in banking business and 20 in other cases. At least two persons are required to form a partnership.
2. Agreement:
ADVERTISEMENTS:
No agreement is required in a sole proprietorship. On the other hand, there must be an express or implied agreement among partners in order to constitute a partnership.
3. Registration:
A sole proprietorship need not be registered except under the Shops and Establishments Act. A partnership firm should be registered otherwise it will not be able to enforce its rights in the court of law.
4. Capital:
ADVERTISEMENTS:
The entire capital of a sole proprietorship is contributed by one man, the owner of business. In a partnership, several persons contribute capital. Therefore, a partnership firm can raise larger financial resources than a proprietor.
5. Management:
The management of sole proprietorship lies exclusively with its owner. He is the supreme authority in the business. But in a partnership, every partner has a right to take part in the management of the firm.
There is pooling of knowledge and judgement. Work can be divided among partners according to their skills and aptitudes.
ADVERTISEMENTS:
6. Secrecy:
Secrets of sole proprietorship are known only to its owner. In partnership, secrets are shared amongst the partners. Therefore, a sole proprietor is in a better position to retain the secrets of business.
7. Risk:
The owner alone bears all the risks of sole proprietorship. In a partnership risks are shared by all the partners.
ADVERTISEMENTS:
8. Continuity:
The life of a partnership is more uncertain than that of sole proprietorship. Lack of mutual trust and unity among the partners can result in untimely dissolution of partnership.
9. Sharing of profits:
In sole proprietorship there is no sharing of profits and all the profits belong to the proprietor. In partnership, profits are shared by the partners in the agreed ratio or equally.