question_answer

How is a partnership firm different from a sole proprietorship?

Answer:

Ans.     The difference between a partnership and sole proprietorship form of business may be as follows. This helps the entrepreneur in selecting a particular form of business of his choice.

(a) Membership: Partnership is owned by two or more persons subject to the limit ten in banking business and twenty in case of other business. Sole proprietorship is owned by one and only one person.

(b) Formation: It is formed through an agreement which may be oral or in writing, is formed quite easily as it is the outcome of a single person's decision without any legal administrative approval.

(c) Registration: The registration is not compulsory. It needs no registration except some compliance.

(d) Regulating law: It is governed by the rules contained under the Indian Partnership Act, 1932. There is no specific statutory law to govern the functioning of sole proprietors' business.

(e) Capital: There is a more scope for raising a larger amount of capital as there are more than one person. It has a limited financial capability. Hence, the scope for raising capital is naturally least.

(f) Quickness in decision-making: Decision-making in partnership is corporately delayed as the partners arrive at decision after consultation with one another. The decision of the sole proprietor is prompt as he need not consult anyone.

(g) Maintenance of secrecy: Maintenance of absolute secrecy is not possible if partnership as business secrets are accessible to more than one partner. The sole proprietor need not share his business secrets with anybody.

(h) Management: Every partner has the right to take active part in the management of the business. Each partner also enjoys the authority to bind the firm and other partners for his acts in the ordinary course of business. The sole proprietorship is self-managed one and a few employees may support him. However, the decision of the proprietor is final and binding.

(i) Risk: The risk connected with the business is comparatively less as it is shared by all the partners. The risk of the sole proprietor is greater than that of partnership form of business.

(j) Duration: It continues as long as the partner’s desire. Even though legally it comes to an end on the death, insolvency or retirement of any of the partners, the business is continue with the remaining partners. It comes to an end with the death, insolvency incapacity of the proprietor. Thus, there is uncertainty of duration of sole proprietorship