The Main Difference Between Sole Proprietorship and Partnership
What is a main difference between a sole proprietorship and a partnership?
a) A sole proprietorship is a separate legal entity from the owner, a partnership is not.
b) A partnership typically has more resources available to it than a sole proprietorship.
c) In a lawsuit, partners would be personally liable, but a sole proprietor would not be.
d) A separate income tax return is filed for a sole proprietorship, but not for a partnership.
Answer:
The correct answer is: c) In a lawsuit, partners would be personally liable, but a sole proprietor would not be.
In a sole proprietorship, the owner is personally responsible for all the business's debts and liabilities. On the other hand, in a partnership, each partner shares the responsibility and is personally liable for the partnership's debts and obligations.
This means that in a lawsuit, partners can be held personally liable for the actions and debts of the partnership, while a sole proprietor's personal assets are generally protected.
It is essential for business owners to understand the implications of different business structures and the level of personal liability associated with each. This distinction can have significant legal and financial consequences in the event of disputes or lawsuits.