Difference between Proprietorship and Partnership Firm for Startups

Introduction

If you are planning to start a new startup, then you have to keep in mind that your business will benefit in what form of business. Choosing the right form of business is very important because this will give you some advantages and Disadvantages so it is very important to select the correct form of business. During the incorporation of business, you can form your business with Sole Proprietorship or Partnership Firm. Both have some similarities like easy formation, less compliance, and simple registration but there are some differences, you should compare these two so you can find a better option for your business. This Article talks about the differences between a Proprietorship and a Partnership Firm.

What is Sole Proprietorship?

Sole Proprietorship Firms can be incorporated by one Person only. This is the oldest form of business where business is incorporated by only one person. The owner of the firm is the sole decision maker in the firm and the business is carried by only one Person. The Proprietor uses his own finance, skills, experience, and Knowledge to operate the business on his own. There is no formal registration required for Sole Proprietorship but you can register your Sole Proprietorship Firm Registration under the Shop Establishment Act or under GST.

If you want to secure your legal rights then you should register your Sole Proprietorship with Shop Act License and GST. You can also register your business under Udyog Aadhar, which is issued by the Ministry of Micro, Small, and Medium Enterprises. Registration is important because in the future you can avail benefits from the government schemes and you can secure your business by registering it.

What is a Partnership Firm

A Partnership Firm is a form of business where a Firm can be incorporated by a minimum of 2 people and it does not require minimum capital contribution from partners according to laws. Partnership Firm governed by the Partnership Act, of 1932. In simple words, Partnership means Partners share the profit and loss according to their Partnership Agreement. Incorporation of a Partnership Firm is very easy and simple, a partnership firm can be incorporated by a minimum of 2 persons. Partnership Firm Registration is not mandatory but Registration will give you security under the laws.

The process of Registration is very simple, first, you have to choose your partnership name and it should not be copied from other business entities. Then you have to make a partnership deed/agreement, this agreement should contain the all details of the partnership firm and its partners. Partnership Firms will act according to their agreement. An important thing is this agreement should contain the stamp and sign of all partners, and this agreement should be notarized. After making of deed you can go to the Registrar of Firms, where your Partnership Deed will be registered. It is optional, if you don’t want to register it, then your partnership firm can be incorporated by with Partnership Deed.

What are the Differences?

1. It is not necessary to register both the partnership firm and sole proprietorship, but if you want to register your Partnership Firm then you can register the partnership firm with the Registrar of Firms according to the Partnership Act whereas there is no formal registration process is given under any law for the Sole Proprietorship.

2. The main difference is Sole Proprietorship can be incorporated by only one person and cannot extend the member whereas a Partnership Firm requires a minimum of 2 people for incorporation and more partners can be added.

3. Sole Proprietorship will be taxed as an individual whereas Partnership Firm will be taxed at the Tax rate of 30% on the firm’s Profit

4. Partnership Firm is governed by the Partnership Act whereas there is no specific laws on Sole Proprietorship.

5. It becomes easy to bring capital into the business and bear the losses as there are more than 2 partners in a Partnership Firm, as they can share the Profit and loss but in the case of Sole Proprietorship all burden is on the Sole owner, the Sole owner have to bear all the loses.

6. In a Partnership firm it is easy to bring resources into the firm whereas it is difficult for the Sole Owner

7. In a Partnership Firm decision-making is slow as compared to Sole Proprietorship because it takes time in a partnership firm as everyone has different opinions in the firm and takes time to reach a conclusion.

8. In the case of the death of the Sole Owner the Sole Proprietorship will be dissolved whereas in the case of Partnership firm, partners can carry the business.

Conclusion

If you are planning a startup then you should consider the above given points because it is very important to choose the correct form of business. As you can see there are some differences between a sole proprietorship and a Partnership Firm, if you are a single person in your business then you can opt for the sole proprietorship and if there are more than 2 people then you can go for the Partnership Firm. So read carefully these differences and compare them so you will find the correct option for you.