Question

1) Define and describe in detail a Sole Proprietorship and a General Partnership. In your answer compare the similarities that these two forms of business operation share. In addition set forth the differences that exist as between these two business entities.

Answer 1

Sole Proprietorship: It simply refers to a person who maintain the business and is personally responsible for his debts. It is the simplest business form under which one can operate a business. The proprietor of a sole proprietorship is typically signs contract in his or her own name, because the sole proprietorship has no separate identity under the law. Sole proprietors are personally liable for all debts of a sole proprietorship business.One of the greatest feature of the sole proprietorship is the simplicity of formation. A sole proprietor may use a trade name or business name other than their or its legal name. They may have to legally trademark their business name if it differs from their own legal name.

General Partnership: It is type of business which is privately maintained by one or two business partners. It is partnership business under common law. The most important is that it must be created by proof of existence and agreement. It is a partnership in which partners share equally in both liability and responsibility. General Partnership Liability insurance is available to protect partnership form each other. The benefit of this is that it protects the personal assets of the partners not at fault. Decision-making within general partnerships may be achieved by majority vote or may be awarded to a single partner or non partner appointee who can manage the partnership.

Similarity:

Similarity between the general partnership and sole proprietorship is they detail profits and loses from their own business on their personal tax returns and are personally liable for the debts of their enterprises. Set-up is easy according to both sole proprietorship and general partnership. Another similarity between both them is they pass their income directly to their owners.

Difference:

In sole proprietorship, the owner or proprietor is liable for all loses, and in turn receives all of the profits.On the other hand, in a partnership , the partners must share in the profit and losses as agreed to in the partnership agreement. The main difference between a sole proprietorship and general partnership is the number of people who own and operate the business. in sole proprietorship, if business is sold then the company is automatically dissolved. In a general partnership, if the business is withdrawn then the other partner of the company may run the business.