Proprietorship & Partnership are two modes for starting a business in the form of ownership, we will discuss the feature and pros & cons of starting them.
In Case, if you are wondering why to register a Proprietorship or partnership business, then you can read our first article (Lesson-1) to understand easily.
1-Sole proprietorship
2-Partnership
What is Sole proprietorship?
it’s a firm /company of doing business where one person owns and runs a business under the specific Business name. to start a business as a sole proprietorship we need to register our business in the local Chamber of Commerce & industries.
Characteristics of a sole proprietorship
- 1: Ownership: the business is owned by a single individual
- 2: Management: being small in size it is managed by the owner himself
- 3: Finance: the necessary capital to run the business is provided by the sole owner
- 4: Risk: the proprietor ship bears all the risks
- 5: Unlimited Liability: the sole trader is personally liable for the debates of the business not only from his business assets but also his personal such as car house furniture etc to recover the loan
- 6: Legal status: all the Assets and liabilities of the business are the personal assets
- 7: No Legal Formalities: the sole trader can set up are closed the lawful business as he likes
- 8: Ease of Dissolution: the sole trading business is as easy to end or dissolve as its formation.
Advantages of Sole Proprietorship
- Ease a formation
- Sole authority
- Sole claim on Profit
- Flexible and inexpensive management
- Minimum legal restriction
- Secrecy
- Possible tax advantages
- Power to start and close the business
- The benefit of inherited goodwill
The disadvantage of a sole proprietorship
- The burden of unlimited liability
- Difficulties of expansion
- Lack of continuity
- Loss in absence
- Absence of specialization
What is Partnership?
The partnership is the relation between the person who has agreed to share the profit of the business carried on all by or any one of them acting for all.
The partnership deed must be written to start the business and the dissolution deed to wind up the business. The profit and loss are divided according to the percentage of the partners, in case of a big loss their personal properties can be sold to pay the business obligation.
The partnership deed is registered with the registrar’s office. When the deed is registered the registrar’s office issues the Form C and when the dissolution deed is registered than the form D is issued by the registrar’s office.
Note: The partnership deed is written on the stamp paper of Rs 500 the Dissolution deed is written on the stamp paper of Rs 250 rupees.
Essential elements of partnership
- Association of at least two persons
- Contractual relation agreement partnership deed
- Earning profit and sharing profit loss
Features of Partnership
- Formation: if at least 2 and a maximum of 20 people enter into an agreement for carrying on a business with the private gain then the partnership is formed.
- Financing: a person who has a special skill or ability can be admitted to the partner without any capital contribution.
- Management: every partner has a right to take part in its management.
- Restriction on transfer of interest: no partner can transfer his share to any other person without the prior consent of all other partners.
- Unlimited liability: unlimited liability of all partners.
- Duration: it is a temporary form of business ownership. the partnership can come to an end if any partner leaves or die declared bankrupt/insolvent on insane. it is also dissolved by the partner by obtaining a degree from the court
- Taxation: if a firm is registered the profit of the firm is first divided among the partners and then assessed separately in case it is not registered the firm will be assessed on total profit.
