Partnership is formed to conduct a business with two or more partners being fully involved in the operation of business for profit. The partners contribute money, property, or services to the partnership; in return, they receive a share of the profits. The two most common partnership types are general and limited partnership.
No written partnership agreement is necessary, though it’s a good idea to make one. A partnership can arise even though there is no express agreement and the parties do not call themselves partners. Without question, a carefully prepared written agreement spelling out the rights and duties of the partners is highly recommended. A partnership agreement could be helpful in solving any disputes. There are some more advantages and disadvantages to the partnership.
Advantages of partnership:
- They’re easy to form
- More sources of capital
- Liability may be spread among the partners
- Sharing emotional burden
Disadvantages of partnership:
- Friction between partners
- Lack of continuity
A sole proprietorship is the easiest, least expensive, and least regulated business legal structure. A sole proprietorship is simply a business that is owned by one person. If you go into business for yourself and do not have any partners, you are considered a sole proprietor. The proprietor personally owns all of the assets of the business and controls its operations.
To establish a sole proprietorship, all you need to do is name the business, get a business license from your city or county, publish a fictitious business name statement in a local newspaper, open a checking account, open your doors, and you are, quite literally, in business.
Advantages of the sole proprietorship:
- Low start-up cost
- Ease of formation and running more quickly than with other structures
- You have total ownership and control of the business
- You don’t have to share profits with anyone
Disadvantages of the sole proprietorship:
- Difficulty in raising capital
- Unlimited liability. The owner of a sole proprietorship is personally responsible for all business debts, obligations, and judgments of the business
- You must pay self-employment tax on the business net income