Individual entrepreneurship vs. partnership
Novice entrepreneurs can choose: in partnership with someone or independently create an enterprise for them. Let’s look at these two options for creating a business in comparison.
When you start your business, it is important to choose the right legal structure for it. This not only helps legitimize your business, but is also necessary for taxation and licensing. Depending on the nature of the enterprise and the number of people involved, your business may be registered as an individual enterprise, partnership, limited liability company, additional liability company, joint-stock company or corporation.
Individual entrepreneurs – individuals who are registered in accordance with the law and carry out business activities without forming a legal entity. The business is owned by an individual who is fully responsible for all income and debts associated with the enterprise. This is one of the least expensive forms of registration, which provides the entrepreneur the absolute power to carry out the activities of the enterprise. It is estimated that more than 75% of all enterprises are registered as an individual entrepreneur. Registration and licensing are very simple, by obtaining a license for the right to operate from the state.
One of the clearest benefits is the amount of time and capital required to register your business. Unlike corporations, it does not require a huge investment.
With individual entrepreneurship, the owner himself controls all expenses and profits, a strategy by which his business will develop. Since legally an entrepreneur is not obliged to wait for approval from the side.
In case of a question about closing a business, legally this question will also be very simple, not like in the case of corporations.
The sole proprietor is responsible for all debts that may arise. And, moreover, it is the private property of the entrepreneur, like a car, an apartment, and so on, that will go towards these debts.
The entrepreneur himself must find capital to start a business. In addition to starting capital, the difficulty will also be the search for funds to expand the enterprise.
An individual entrepreneur not only rests on the laurels of his own business, but also takes upon himself all the comments, and therefore is subjected to great pressure. He makes all the decisions, thus, if something is wrong, then it is only the fault of the entrepreneur.
In accordance with the tax code, a partnership in business is a commercial organization established by two or more persons, in the management of whose activities the participants of the partnership take part, as well as other persons within the limits and in the scope stipulated by the partnership management agreement. Each of the participants contributes their own funds, labor and skills to the business, and relies on their share of the profits and expenses of the enterprise. A company owned by two or more people is already a partnership. The factors causing the partnership are similar to those that define an individual enterprise, the only difference is that profits and losses are divided into all business owners.
The initial capital is divided between the co-owners, which make the contribution more accessible. And in times when a business requires new capital injections, it becomes easier to raise funds.
Responsibility for making decisions does not rest on one person, which means that in the event of any problems, not only one person is responsible for everything.
Having several co-owners at the head of a business increases the number of proposed solutions to the problem that has arisen. Partnership helps to share responsibilities.
One of the most obvious disadvantages of a partnership is the possible appearance of disagreements between the co-owners. There are situations where you can not agree with a specific proposal or your solution to the problem will not receive approval. In such a case, you legally become responsible for decisions made by a majority that you may disagree with.
Profit is divided equally, which is sometimes accompanied by friction between partners. And when you have made every effort for a project, and your partner did not lift a finger, be prepared for the win to be divided.
The partnership has a limited lifespan. And if for some reason one of the partners decides to leave the business, you will have to face all the difficulties and uncertainty.
This is only general information about the individual entrepreneur and partnership. Everywhere there are advantages and disadvantages, so the choice is yours.
If you had experience working as an individual entrepreneur or one of the co-owners of the company, please tell us about it in the comments!