Differentiate between sole trader and partnership

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Let us understand what a sole trader and a partnership are, before learning about their differences.

Sole trader

An individual who owns and runs the total business is known as sole trader. In simple words, a sole trader has to look after his/her own resources to run their business.

He/she has to apply for a license before starting their business. Chance of liability is unlimited, so he/she should have a cautious approach.

Motivation, secrecy, freedom of trade selection etc. are the characteristics of sole proprietorship. Main objectives are creating own opportunities, helping large business, productive use of funds etc.


It is a legal relationship between two or more individuals/companies. They make an agreement before starting their combined business. Same business motive, unlimited liability, profit sharing etc. are features of partnership business.

Generally, there will be two types of partnerships namely, limited and general partnerships.

In general partnership, all rights and responsibilities are shared equally between partners. In limited partnership, there will be limited control to one of the partners.

Sr.NoSole traderPartnership
No legal formalities.
Includes legal formalities.
Not controlled by legislation.
Controlled by legislation (partnership Act, 1932).
One-man business.
More than one person can be involved. It depends upon business type and can have up to 20 members.
No need for agreement.
Requires agreement/deed.
Maintains secrets.
Maintains secrets.
Limited supply of capital.
More supply of capital.
No delay in decision making.
Decision making takes a long time.
Risk borne by one person.
Risk is shared between partners.
Inefficient management due to various reasons.
Efficient management.
Sometimes leads to business continuation.
Renews agreement/deed.
Profit/loss belongs to one person.
Profit/loss is distributed among partners.

Updated on 08-Jul-2021 06:41:05