Sole Proprietorship vs Partnership in A Business

When is a business not a business?  If you fill out an EIN form, you will find that it asks you to choose an entity type for your business. However, the tax id filing for each of the entities is somewhat different.  Some of the entity designations, such as estates and trusts, do not seem like businesses at all, but they still must file business taxes.  Meanwhile, the distinctions between some of the entities are subtler.  Sole proprietorship vs. corporation is quite clear cut, but what about sole proprietorship vs. partnership?

Business Man Taking Notes

A Business Without all the Bureaucracy

What most people think of as a business with a capital B is what the IRS calls a corporation.  A corporation is just one type of business entity, though.  It is the most structured one and the most removed from the individual owner.  Sole proprietorships and partnerships are a way for individuals and small groups of people to separate their personal assets from their business activities.  At the same time, these designations do not involve all the red tape or the tax burdens of a corporation.

One Business Owner or Several?

The main difference between a sole proprietorship and a partnership is that a sole proprietorship belongs only to one person.  It is technically possible to operate a sole proprietorship without even applying for an EIN since you can just use your social security number.  An EIN for your sole proprietorship leads to less confusion at tax time.  A partnership is like a sole proprietorship except that there are two or more owners.  In a partnership, the ownership must be divided equally among the partners.

Sole proprietorships and partnerships are convenient ways to start a small business.  Getting an EIN for your sole proprietorship or partnership can take as little as a few minutes of your time.


Lynne Huysamen

Mommy to a pigeon pair, blogger and online marketer. Lover of chocolate, good books and buckets of coffee.

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