Sole Proprietor Vs. Partnership Type Business

Sole Proprietor Vs. Partnership Type Business

Are you the sole owner of your business or are you willing to bring in some business partners? Before you start gathering documents for Tax ID filing, you have to familiarize yourself first on two of the five main types of businesses – Sole Proprietorship and Partnership.

Here are two important things you need to know:


Putting up a sole proprietorship business is easier and more affordable. A sole proprietor is not required to pay unemployment tax for himself. Instead, he will be required by law to pay for the unemployment tax of his or her employees. The proprietor can also mix business or personal assets freely.

On the other hand, a partnership is formed between two or more individuals who share management decisions and profits. As business partners, each of them will contribute money, skills, and share both the profits and losses.

There are two types of partnerships – one is general and the other one is limited.

A general partnership is where all partners manage the company and accept responsibilities, obligations, even losses incurred by the business.

Limited partnerships, meanwhile, have general partners who operate the business and assume the liabilities, and limited partners who do not have control over the business and are, therefore, not subject to the liabilities that general partners have.

Taxation type 

Both types of business entities are subject to “Pass Through Taxation” which means that all profits and losses of the business pass through the individual’s personal tax return.

However, for sole proprietors, profits and losses go on form Schedule C of the individual’s personal tax return, while in a partnership it goes on Form 1065 of the personal tax return. The income and deductions incurred in a partnership also go to form Schedule K of the individual’s personal tax return.

Now you are ready to put up that business. Convenient Tax ID filing services are found online, such as GovDocFiling, to help you make your plans start rolling.