Sole proprietorship vs. Partnership? Which is better?

Sole proprietorship vs. partnership, which is better?

Many novice entrepreneurs are often troubled by the question of whether to go into sole proprietorship or to find a partner to work with.

In this article, I, the CEO of 1on1, will share my own experience in starting a business to analyze which one is better for you: sole proprietorship or partnership, and the advantages and disadvantages of each.

Sole Proprietorship – Advantages and Disadvantages

Advantages

– The process of establishing and dissolving a business is relatively simple.
-Management of the enterprise is more flexible and free. Basically the owner can develop, implement and manage his business strategy according to his own will. In addition, the decision-making efficiency is high.
– The ownership, control, management and revenue of the enterprise assets are highly unified. This is conducive to keeping secrets related to the operation and development of the enterprise and to the development of the owner’s personal entrepreneurial spirit.
– The external laws and regulations of the enterprise have less constraints on the management, decision making, entry and exit, establishment and bankruptcy of the enterprise.

Disadvantages

– The owner of the business has unlimited liability for the debts of the business. Moreover, when the assets of the business are not sufficient to pay off its debts, the owner will use his personal property to pay off the debts of the business; this is beneficial to protect the interests of creditors, but sole proprietorship is not suitable for risky industries.
– At the beginning of the business, before senior staff is recruited, it is almost necessary to work alone and there is basically no one to advise on all matters.
– The existence of a sole proprietorship lacks “reliability”; the survival of a sole proprietorship depends entirely on the owner’s personal success or failure, making the existence of the business more risky.
– It is more difficult to raise large amounts of capital because one person’s capital is ultimately limited, and it is more difficult to obtain credit or mortgage loans in one’s name. Therefore, the sole proprietorship limits the expansion and large-scale operation of the enterprise.
– The basic relationship within the enterprise is an employment-labor relationship, and the difference between the interests of employers and employees may constitute a potential danger to the efficiency of the enterprise’s internal organization.

 

Partnership – Advantages and Disadvantages

Advantages

– Increased sources of capital and credit; the partnership can bring in more possible investment capital from the network and strength of several people, and can also make more efficient bank loans and other credit guarantees.
– The partners can participate in making business decisions together and each of them can contribute their strengths, which may lead to a more efficient division of labor and management at the beginning of the venture.
– The partnership may have more capital and management talent to oversee a larger staff and manage a larger business than a sole proprietorship.

 

Disadvantages

– In the unlimited liability section, generally the partners must bear unlimited liability for all debts, both individually and collectively, to the partnership, i.e. if one partner cannot afford his portion of the loss, then the other partners must be jointly and severally compensated.
– Management issues are more complicated, as all partners have the right to make external contracts in the name of the partnership, and have the right to make decisions internally (board of directors), so there is often a problem of confusion.
– It is easy to have people who only talk but don’t do anything, or have uneven working ability, resulting in unbalanced contribution.

 

Conclusion

Generally speaking, I don’t think there is a “right” way to start a business.

For example, if you are a person who needs company and needs to discuss and get advice from others, then you may need a partner who is close to your philosophy to grow with you.

There are many successful businesses of both kinds, but the main thing is the style you want your business project, product or service, as well as the company’s culture and goals, to end up with.

However, if your goal is to take your company public, merge and acquire, or expand, there are bound to be some changes in your company’s organization in the future, but we won’t mention them in this article.

But remember, “never” because of the need to find “money” to find a “partner” who is only capable of contributing financially, but can not put in any efforts to the team.

 


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