In order to understand the difference between a proprietorship and a firm, it’s really important to understand both these concepts in detail individually. In order to differentiate between them, a deep understanding of both these concepts is necessary. Understanding this distinction is necessary so that you can choose the correct entity as per your business requirement. It’s not like that out of these two one is better than the other, it completely depends on your business requirements. For example a single person cannot go for the partnership firm, hence it will not be suitable as per the business requirements of the person who wants to start his or his business individually. Which entity will be suitable for which business it will be different for different business owners, we cannot uniform it for everyone.
Understanding the Concept of Sole Proprietorship Firm
The word sole indicates solo that means individual. Those businesses which are run by an individual person are called sole proprietorship firms in India. These firms are having the least formalities and most suitable for those businesses which are running on a small level. It does not mean it is not good for the big or mid sized businesses, here we are talking about the most suitable for, hence don’t be confused with the same. Sole Proprietorship Registration is not like the corporate entities. In order to understand the difference between a proprietorship and a firm, it’s important or we can say necessary to know about or discuss proprietorship separately.
What do you Understand by Partnership Firm?
Before diving deep into the understanding of the key difference between a proprietorship and a firm, you need to understand them separately first. Hence we explained both the concepts individually here. The name of these firms itself suggests their nature. These firms are for those individuals who want to start a business with each other as partners. These entities cannot be started by a single individual. For partnership firm registration at least two or more than two individuals are required. These forms cannot be recognised by certain other registration. They need to be registered separately.
Which is Better Sole Proprietorship or Partnership?
It completely depends on the business to business as well as the will of the owner of the business. Sole proprietorships are good for small businesses run by an individual, in a particular locality with no further plans of expansion or who is right now not sure about whether he wants to expand his business in future or not. On the other hand when a business is midsize and more than one person is involved in the same and they are having expansion plans they can go with the partnership firm. There is nothing like which one is better. Both are suitable for the different businesses as well as in different situations. Instead of knowing about the betterness you should try to know about the difference between a proprietorship and a firm. This will help you to choose one between them.
What is the Difference Between a Proprietorship and a Firm?
Some of the key difference between a proprietorship and a firm are:
| Particulars | Sole Proprietorship Firm | Partnership Firm |
| Number of Members | These firms are run by a single individual person, who is known as the proprietor of the firm. | There entities needs more than one person and their members are known as the partners of the partnership firm |
| Registration Process | Its registration can be done easily | Its registration is comparatively tough and needs help of an expert |
| Governing Law | There is no particular law that applies on sole proprietorships only. | Partnership Act of 1932 governs partnership in India |
| Suitable For | They are suitable of small and local businesses | They are suitable for mid sized business as well as small sized businesses |
| Ownership of the Business | Proprietor is the sole owner of the business | All the partners are having their shares in the partnership businesses |
| Liability of the Members | Proprietors are liable for the businesses of this firm | Partners are responsible equally for the management as well as oppressions of the business of the partnership firms |
| Is Registration Mandatory | No, they can be register by the other registrations like GST or MSME | It’s not mandatory to register such kind of entities but it is always suggested to register them. |
Benefits of Sole Proprietorship and Firm
Some of the key benefits of the sole proprietorship and the firms which also makes the difference between a proprietorship and a firm, clear are mentioned below:
| Sole Proprietorship Firm | Partnership Firm Registration |
| Its is very easy to form such type of business entity | Partnership firm registration is not as hectic as corporate bodies incorporation |
| Here the complete control is in the hands of the owner of the business | Burden of the business is shared as such businesses are run by more than one person in partnership |
| Direct as well as simple tax is levied on the same | Responsibilities as well as workload is shared between the partners |
| There will be full flexibility in the operation of the business | As there are more than one individual in this business, there will be more resources as well as capital for running the business |
| It has the minimum regulatory compliances which makes it easy to run | Diverse skills will be there |
| There will be direct connection between the customers and the owner of the business | There are more than one people in this business which offers it more ideas |
| Here there will be no sharing of the profit as it is run by an individual person | More expertises in this kind of entities |
| Its operating and management cost is very less in comparison to other business | There are people to work in the absence of one partner |
| Its dissolution process is also very simple which provides ease in their dissolution | Entire business in not in just one hand |
| Decision making is very quick which is good for the companies business | Multi[ple ideas helps in the growth of all directions |
| As it is run by single individual there is full privacy here in this entity | All the partners are equally responsible for the work as well as liabilities of the business |
Conclusion
After reading the content given above in the present blog the key difference between a proprietorship and a firm will be clear. The purpose of this blog is to make you understand the difference between a proprietorship and a firm so that you can choose one among them easily. Many times people got confused between these two. Hence we came up with this writeup so that no such confusion will remain in the market. If you need any help while registering any kind of entity feel free to contact us, we are just one click away.
