What is a Sole Partnership | 2024 Guide

March 20, 2024
14 Minutes
Modified on:
March 20, 2024
Written by:
Swati Bucha
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A vital first step for entrepreneurs who are prepared to end their fantasizing and start their own company is selecting the appropriate legal structure. The most popular and straightforward structure among the several choices for small startup businesses is the sole proprietorship or sole partnership. 

As its name suggests, a sole proprietorship is owned and run by only one person, negating the need to create an independent legal body. It gives entrepreneurs complete control and rewards them with all earnings, making creating single-proprietorships simple and affordable. 

However, there are restricted opportunities for advancement and unrestricted personal culpability. Even though sole proprietorships are the best first option for many prospective business owners, it's crucial to comprehend the sacrifices involved. 

This blog will go into important information concerning what a sole partnership, as well as the kinds of businesses that work well with this structure and things to think about one more time before going solo.

What Does Sole Partnership Mean in Business, and How Does it Work?

The sole proprietorship is the most basic and popular company form for freelancers or small enterprises. It isn't listed as a distinct corporate entity with the state. There is no official division between the owner and the business because the owner runs it individually. Profits and losses are all transferred straight to the owner's tax return.

The proprietor is entitled to all corporate earnings and has exclusive control over the enterprise. Therefore, they are equally subject to limitless personal accountability for their liabilities. The duration of the owner's employment and the business are the same.

A sole proprietorship is created when an individual begins operating under the company's name and secures necessary licenses or permissions. When compared to other business forms, startup costs are negligible. Nonetheless, most solo owners require business banking accounts, commercial insurance, and independent financial tracking. 

When a sole proprietorship wants to end, the owner has to stop doing business but still pay their debts. It gives business owners direct authority and compensation for their work.

How to Start a Sole Partnership Business?

Here are the steps to start a sole partnership or sole proprietorship business: 

Step 1. Decide on a Business Name.

Choosing a name for your company can be exciting since it represents you and the goods or services you are offering. People will identify you with this name; thus, it must accurately reflect your company.

Starting a sole proprietorship is easier because your legal name automatically becomes your business name. Also, check the United States Patent and Trademark Office (USPTOS) to ensure your name isn't trademarked. In the interim, you may register a different company name, often known as doing business as (DBA).

Step 2. Register Your Business DBA Name.

There is no need for additional action if you choose to use your entire legal name for your company. You can conduct business without registering and file taxes using your Social Security number.

Nonetheless, many one-person businesses utilize a trade name for marketing or to maintain privacy between their personal and corporate identities. You must register a DBA name if you intend to use a name different from your given name. Take Jane Smith, who operates under "The Wedding Seamstress." Even though you use your business name, you are still conducting business as a sole owner. Verify that no other company uses your name by searching within your authority.

States have different requirements for filing a DBA, and you might have to file at the municipal or state level. Consult the county clerk's office or the secretary of state's office in your company's location.

Step 3. Buy and Register a Domain Name.

Making a website—your virtual headquarters—is a strategic method to promote your company. This is your most valuable digital resource—where clients can learn more about your goods and services.

You're prepared to purchase your domain name now that you've decided on the ideal name for your company, filed for your DBA, and verified that no other company is using the same name.

A domain name is a special URL address meant to drive visitors to a certain website. In this instance, your company name or catchphrase will be specifically referenced in the domain name. Depending on the domain registrar you choose, you must run a name search to ensure the domain is available. The domain name should be as similar to your company name as feasible.

Step 4. Apply For An EIN.

On the IRS website, you can apply for an employment identification number (EIN) after filing for a DBA. Your business is identified by its EIN for taxation purposes. If you apply for an EIN online, the application is completed quickly, and you will receive an EIN.

The IRS does not require sole proprietors to have an EIN unless they have workers or are subject to excise taxes. Your Social Security number may be used in its place. However, if you plan to recruit staff, you'll require an EIN, and opening a company bank account might also require it.

Step 5. Obtain Business Licenses and Permits.

Various states have license requirements for particular professions and sectors. Federal licenses or permissions are required for a few sectors. Depending on the nature of your company, you might have to apply for permission or an operational license. 

Furthermore, regardless of size or industry, all businesses must obtain a license in several states. A general business license is furthermore necessary in some counties and towns. You can inquire about license requirements by contacting the administrative offices of your city and county and visiting your state government's website.

Lastly, you will most likely want a seller's permit if you sell items subject to sales tax. This state-issued permit allows you to collect sales tax, which you will submit to the state.

Step 6. Get Business Insurance.

There are advantages to being a sole proprietor, but there are also drawbacks. However, liabilities incurred by a sole proprietorship can relate to personal obligations. Insurance for small businesses can be a good idea.

You bear the responsibility for any out-of-pocket costs in the absence of coverage. Liability insurance can assist in defraying the expense of accidents, property damage, and legal fees. This might lessen the financial burden of any accidents or unforeseen events.

Step 7: Create an Account with a Business Bank.

If you are a sole proprietor, opening a business bank account is not necessary, although it might have several advantages. A corporate bank account makes keeping your company's money organized easier. Keeping your business and personal accounts distinct can make tracking business costs and filing taxes much easier.

You can create business credit and accept credit card payments with a business account. Furthermore, you could eventually wish to expand your company, so having a business bank account can be crucial to establish a line of credit or taking out a loan.

Key Differences Between Sole Proprietorship and Partnership

Now, a sole proprietorship may even be called a sole partnership, as only one individual handles, manages, and operates the business. Still, a sole proprietorship and partnership are two different types of business ownership. Let's look at how the two are distinguishable:


  • Sole Proprietorship: A sole proprietorship is one where one person has all of the ownership. Being the only owner of the company, the proprietor has exclusive authority over all aspects of its management, including decision-making.
  • Partnership: A partnership is when two or more people jointly own the company. Generally, each partner makes a financial, labor, or skill-related contribution, and they split the gains and losses in accordance with the conditions of their partnership agreement.

Formation and Closure

  • Sole Proprietorship: There aren't many legal requirements to start a sole proprietorship, and the process is easy. Closure can be simple since the lone proprietor usually has to sell the company or cease operations.
  • Partnership: Formal agreements that specify the parameters of a partnership, such as profit-sharing, decision-making power, and conflict-resolution procedures, are necessary for partnerships. Closure might be more complicated due to the frequent need for legal processes to end the partnership and divide assets among the partners.

Governing Law/Statute

  • Sole Proprietorship: Unlike partnerships, sole proprietorships are sometimes subject to less formal legal requirements and restrictions. Applicable business rules and regulations still govern them.
  • Partnership: Depending on the jurisdiction, different rules and legislation apply to different types of partnerships. These regulations govern the creation process, dispute resolution methods, and partner rights and obligations.

Risk and Reward

  • Sole Proprietorship: A sole proprietorship entails that the business's risks and benefits are all on the individual. They have full claim to any profits made by the company but are also personally responsible for any debts or responsibilities created by it.
  • Partnership: In accordance with its prearranged conditions, partners split the business's risks and rewards. Profits are divided among the partners according to their ownership share, and each member is responsible for the partnership's debts and liabilities.

Credibility and Funding

  • Sole Proprietorship: Because the lone owner assumes entire liability, sole proprietorships are typically viewed as riskier than partnerships and may thus lack the trust that partnerships have with lenders and investors.
  • Partnership: Because partnerships comprise numerous stakeholders who share the business's risks and profits, lenders and investors may view them as more legitimate organizations. A larger amount of funds is also available to partnerships thanks to the contributions of certain partners.


  • Sole Proprietorship: This business structure enables rapid and decisive action since the lone owner controls operations and decision-making.
  • Partnership: In a partnership, decision-making power is usually distributed among the partners in accordance with the conditions of the partnership agreement. Having shared power may result in stronger decision-making processes but can also cause arguments and disputes between partners.


  • Sole Proprietorship: Legally speaking, sole proprietorships are exempt from this need, but it is still a good idea for them to have well-defined contracts or other written agreements that cover important areas of their business, such as agreements with suppliers or service providers.
  • Partnership: Formal partnership agreements are necessary for partnerships. These agreements should specify each partner's rights and obligations, profit-sharing plans, decision-making methods, dispute resolution procedures, and procedures for adding or removing partners.


  • Sole Proprietorship: The owner/manager is in charge of overseeing all facets of the company, including financial matters, operations, and strategic planning.
  • Partnership: Depending on each partner's specialization or areas of interest, partnership management duties might be distributed equally among them or assigned to certain partners. The management structure and decision-making procedures inside the partnership are normally described in the partnership agreement.

Advantages of Sole Partnership

The independence and flexibility a sole proprietorship affords its owner is its principal attraction. This is particularly valid for those just starting a business and those trying to grow their side gig. One can benefit much from being a solo entrepreneur in any circumstance. These are a few typical advantages.

1. Full Decision-Making Authority.

Making decisions for your firm is entirely your responsibility as a solo owner. Unlike in a partnership or LLC, you are not required to consider the views of your legal partners or shareholders. You can choose any course of action you believe would benefit your company the most.

2. Easy to Set Up.

A sole proprietorship is far simpler to establish than other business structures. You don't have to worry about formal agreements with other company partners when you operate as a solo owner. You also avoid the tedious duties of running a firm, such as selecting a board of directors or distributing shares to shareholders. To operate your business lawfully, you must get all required licenses and permissions, including zoning and sales tax permits.

The kind of business you want to operate will determine which licenses and permissions you need to apply for. Contact your state or local government to find out which ones you need.

3. Lower Up-Front Cost.

Starting a sole proprietorship is generally free. While obtaining your business domain, name, and any required licenses or permissions may cost money, these expenses are not what the typical startup fee for an LLC entails.

4. Simple Tax and Lower Tax Rates.

Compared to other company structures, sole proprietorship has very basic and uncomplicated tax procedures. Sole proprietorships are taxed as pass-through business entities for filing purposes. This implies that your income tax return is where the business's gains and losses are recorded.

For example, if you operate your business out of your house, you won't incur additional costs for space, energy, or internet, which lowers your tax burden. When you file your tax return, you may receive a tax refund. Additionally, there are some tax deductions available to single proprietorships. 

5. Full Control Over Revenue.

As a sole owner, you are responsible for every part of your firm, including income. The amount you choose to pay yourself and any contractors you may have is entirely up to you. You also get to decide how much money you invest into the company.

Bottom Line

Entrepreneurs looking to launch their enterprises must comprehend the distinctions between a sole partnership and a partnership. While partnerships allow numerous people to share ownership and management duties, sole partnerships provide simplicity, autonomy, and flexibility. Several elements, including decision-making dynamics, ownership preferences, risk-sharing capacities, and finance sources available, influence which of these arrangements is best. By carefully considering these factors, entrepreneurs may choose the best business structure for their endeavors.

Frequently Asked Questions

1. What is the main difference between a sole partnership and a partnership?

A sole partnership is owned and run by one person, whereas a partnership consists of two or more people who share ownership and management duties. This is the main difference between the two types of partnerships.

2. Can I change my DBA name?

Usually, you would file for a "termination or abandonment" of DBA for the previous name before changing your DBA name. After that, you must apply for a fresh DBA using your updated company name. Check with your state or local government to find out the process to follow in your location.

3. How does decision-making differ between a sole partnership and a partnership?

A solo partnership gives the owner complete control over decision-making without requiring agreement from other partners. In contrast, both parties must agree on important choices in partnerships.

4. Which business structure offers better access to funding: sole partnership or partnership?

Compared to single partnerships, which could have credibility issues when it comes to finance, partnerships are typically seen as having greater credibility since they include numerous owners. This could make it simpler to obtain funding sources.

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