Partnership and sole proprietorship are simple forms of business ownership that are ideal for small businesses like a daycare center. But before making any decision of which ownership model you are going to choose for your business, it is necessary first to understand what the advantages and disadvantages each business type has.
Sole proprietorship is a type of business entity that has no separate existence from the owner hence the limitations of liability that are normally enjoyed by corporations do not apply. This means that all debts incurred by the daycare center are debts also of the owner because the owner of the daycare center has sole responsibility for the debts of the business. Sole proprietorship therefore refers to a natural person (as differential from a juridical person in a corporation) operating a daycare center business in his own name and in which there is only one owner. The sole proprietor of the daycare center pays personal income taxes on the profits realized from the operation of the business.
A partnership, on the other hand, is a business entity type where partners or owners share with each other the profits or losses of the business operations in which all have made their investments. Partnership can either be general partnership or private limited partnership. In general partnership, the partners and the daycare center are not considered to have separate legal entities. This means that all partners are severally liable for all the debts incurred by the operation of the daycare center. If the daycare center cannot pay off its debts, the partners then are liable to pay off the debts with their own personal assets. Private limited partnership allows the partners and the daycare center to be considered separate legal entities; the partners are not required to pay off the daycare center’s debts with their personal assets. The limited partners, however, are required to deposit and maintain an amount of money in the bank as a guarantee for its operations. Limited partners then get better credit terms than general partners because of such forced deposit.
In the aspect of management, a sole proprietorship is easier to run because the sole owner is free to do whatever he deems necessary for his daycare business whereas the owners in a partnership must share the decision making process. The sole proprietor needs to undertake all the costs, risks, and responsibilities all my himself while in a partnership, everything is equally shared by all the partners who are also the bosses of the business, requiring that the day to day decisions must be by general consensus.
Any business model is the best model as long as it is run effectively by either the sole proprietor or by the business partners. A business owner may enjoy the freedom that goes with sole proprietorship while other business owners feel very much secured in their number in a partnership. Your choice of business model will depend on your personal preferences as to resources and risk in running your daycare center.
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