The Advantages of Going From a Sole Proprietorship to a Limited Partnership
A sole proprietorship is simple to form and manage, but does have disadvantages. The owner and business are legally the same entity. A partnership is a legal form of business with two or more owners. There are two main types of partnerships, general and limited. General partnerships equally share duties, profits and losses. Limited partnerships consist of one general partner and one or more limited partners.
A sole proprietorship business has limited growth and a limited life span. When a sole proprietorship's owner dies, so does the business, since they are considered one and the same in the eyes of the law. A limited partner can depart from the business without ending the limited partnership. The Uniform Partnership Act limits transfer of ownership in general partnerships without the full approval of all partners; this is not the case with limited partnerships.
The financial resources accessible to sole proprietorships are limited to what the owner can obtain. Limited partnerships can attract investors who are only liable for the total amount of their investment and nothing more. Limited partnerships have more financial resources, since all partners can group their funds together, as well as their credit. The partners can apply for individual or joint loans for the business. The general partner in a limited partnership can raise funds without giving up control of the company.
A sole proprietorship owner is in charge of the entire business operation from start to finish, which often presents numerous challenges and difficulties not present in limited partnerships. Partners can draw on both the knowledge and resources of their partners. They do not have to take care of every aspect of running the business alone, subject to state laws, which vary. Partners might share responsibilities, such as management, record keeping, and the business's workload. This allows the partners more time for personal matters.
The owner of a sole proprietorship business is solely liable for all of the debts, judgments or other liabilities of the business. This is a big disadvantage. The owner’s assets and personal finances are joined directly to the business. This is not the case in limited partnerships, except for the general partner, who is jointly and personally liable for the business debts. The limited partners are only liable for the total amount of funds they provided to the business.