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.
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.
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.
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.
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.
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.
The owner alone bears all the risks of sole proprietorship. In a partnership risks are shared by all the partners.
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.