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enterprisewired · 24 days ago

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Running Solo or Tag-Teaming? Sole Proprietorship vs. Partnership Explained

Source: Image by peshkov from Getty Images

Excitement is building worldwide, sparking new ideas among young people. Every other person is passionate about starting a new business and wants to gradually rise to the top of the market. Given the rigid competition and a tightly knit market, starting one is challenging. Did you know that a record-breaking 21 million new business applications were filed in the United States between 2021 and 2024? It is certainly not a smooth ride.

Choosing the proper foundation is critical before starting a venture or materializing your idea. Many entrepreneurs have faced the crucial question of starting a venture alone. Or Partner with a prominent one? Some bold entrepreneurs preferred going it alone as sole proprietors, but others opted for partnerships to combine their skills and resources. What would be your crucial decision regarding a business partnership vs. sole proprietorship? This decision influences your taxes, your risk, and your ability to grow. You carry complete control and full responsibility when you go solo as a sole proprietor. Opt for a partnership; you share power, talents, and risks but also dodge between trust and coordination.

In this article, we will discuss what business partnerships and sole proprietorships are, their core differences, and their pros and cons.

Before looking at business partnership vs. sole proprietorship, let’s first understand what makes each essential.

What Is Business Partnership?

Image by Pavel Danilyuk from Pexels

A sole proprietorship is a business owned and run by one person. It’s the most basic way to start a business: no partners, no complicated setup. You’re in charge of everything: decisions, profits, and, unfortunately, the risks. There’s no legal separation between you and your business, which means your assets could be at risk if anything goes wrong. This setup is popular with freelancers and budding entrepreneurs.

Types of Sole Proprietorships:

Freelancer/Consultant – Writers, designers, coaches, etc.

Retail/Local Services – Single-owner stores, salons, and food stalls.

Online Sellers – Individuals selling on platforms like Etsy or Amazon.

Independent Contractors – Self-employed tradespeople, drivers, and delivery partners

What is a Business Partnership?

A business partnership is when two or more people join to run a business and share the profits. Each partner usually contributes something, like money, labor, or skills, and has a say in how the company is run. Unlike a sole proprietorship, a partnership brings collaboration and shared risk. If one partner makes a poor decision, the others could also be affected. It’s best when different people bring strengths that complement each other.

Types of Partnerships:

General Partnership (GP) – All partners manage and share liability equally.

Limited Partnership (LP) – Some partners invest but don’t manage the business; they have limited liability.

Limited Liability Partnership (LLP) – Partners share management but have liability protection from one another’s actions.

Joint Venture – A temporary partnership for a specific project or period.

Business Partnership vs. Sole Proprietorship: Major Differences

Focus

Sole Proprietorship

Business Partnership

Ownership

One person owns and runs everything

Two or more people own and control, sharing duties

Decision-making

You decide the what, when, and how, no need for consensus

Decisions need negotiation. Clarity in roles is key 

Liability

You’re fully on the hook—debts and suits can cost personal assets 

Partners share liability; one bad move affects all 

Taxation

Income flows to your personal tax return (Schedule C in the US) 

Partnership files a return; income is split and taxed on each partner’s return 

Funding

Limited to your savings or small loans

Pooling resources often unlocks more capital

Growth Potential

Works well for a small scope. Expansion means more stress 

Easier to scale—two heads, more ideas, more reach 

Business Continuity

Ends if you stop; not transferable

Can continue with new partners or terms 

Business Partnership vs. Sole Proprietorship: Pros and Cons of Each Structure

Sole Proprietorship

Pros: You call the shots. Decide anything, such as hours, clients, or strategy, without running it through a team. Getting started is simple: no paperwork, no filings. Just pick a name, maybe file a “doing business as,” and you’re off . Taxes are easy, as you report profits through your return. If it’s a quiet side hustle or a freelance gig, this is creative freedom at its best.

Cons: Your assets, car, savings, and even your home can be on the line if something goes wrong. Lenders may hesitate since the structure is informal and has limited growth options. And it can be lonely, with no partner to bounce ideas off or pass the ball to.

Business Partnership

Pros: Having a partner or two brings more hands, brains, and wallets into the game. You share both the wins and the load. Funding becomes easier because banks and investors see joint investment as less risky. You can tackle bigger challenges and divide tasks; one handles customers while the other handles operations.

Cons: You share liability; your partner’s mistake becomes your headache, too. Conflicts can arise over decisions or profit splits, so a good partnership agreement is essential. You could be stuck untangling a messy exit if a partner leaves without clear terms.

Legal and Financial Considerations

1. Getting started

Sole proprietorships are nearly automatic—pick a business name and get a license if required. Partnerships require a formal agreement outlining roles, profit shares, dispute resolution, and exit plans. General partnerships typically don’t need state filings, but variants like LPs or LLPs do.

2. Protecting yourself

Neither offers legal separation from personal assets. Consider upgrading to an LLC or corporation to shield your savings or home from lawsuits or debts.

3. Tax timing

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If you’re in the US, partners file jointly but report individual shares via a K‑1, while sole proprietors use Schedule C. Both pay income and self-employment taxes . Quarterly estimated taxes are recommended to avoid surprise bills.

4. Money management

Even solo business people should separate accounts—syncing personal and business makes tax time a mess. Partnerships need a joint account and crystal-clear records to avoid confusion later on.

5. Leaving or closing

Shutting down a sole proprietorship is simple: stop operations and close accounts. Partnerships must follow the agreement, handling buyouts, exits, or dissolution. Without that, it can get messy fast.