Similarities Between Sole Proprietorships and Partnerships
Sole proprietorships and partnerships are two of the most commonly used business structures in America, especially for small businesses. The main difference between the two structures is that partnerships have multiple owners whereas a sole proprietorship can only have one owner -- except for certain limited exceptions in the case of a husband and wife running a business jointly. Beyond that, these two business structure are very similar in how they operate and are treated for taxes.
Sole proprietorships and partnerships are both easy and inexpensive to set up. These type of businesses are not separate legal entities. This means that these businesses don't file their own tax returns, and everything owned by the businesses are still owned by the owners personally. When you set up a sole proprietorship or partnership, you don't need to file special paperwork with a lawyer to set up a business structure. You also don't need to file any special registration with the federal government for either business type.
When you run a sole proprietorship or partnership, you are personally liable for your business's debts. If your company goes bankrupt, your creditors can go after the personal assets of you and the other business owners. If someone files a lawsuit against your business, he can also go after your personal assets to settle his claim. This makes sole proprietorships and partnerships a little risky to run, because their owners have unlimited personal liability for anything that happens in the business.
Sole proprietorships and partnerships pass their income straight to their owners. This makes it relatively easy to file your taxes when you run one of these businesses. Any business income gets added straight to your personal income. If your business loses income in either structure, you can deduct the loss against your other income for the year. Filing taxes for more complicated business structures usually requires an accountant. When you run a sole proprietorship or partnership, you can usually manage your taxes your self.
Since sole proprietorships and partnerships are not separate from their owners, they have a limited life. If you and the other owners quit or die, your business ends as well. If someone else is going to take over your business, he needs to set up his own sole proprietorship or partnership. Once that occurs, you can simply transfer over all of your business assets. This is an uncomplicated transfer because you still personally own everything.