What is the difference between a sole proprietorship and a partnership?

The distinction between a sole proprietorship and a partnership fundamentally lies in their ownership structure. A sole proprietorship is a business owned by a single individual, who has complete control over its operations and finances. This means that all profits, losses, and liabilities fall solely on the owner. In contrast, a partnership involves two or more individuals who come together to run a business. Each partner shares in the responsibilities, profits, and liabilities of the business based on the terms of their partnership agreement. This basic ownership framework is crucial in understanding the legal, financial, and operational implications for entrepreneurs considering which structure to adopt for their business.

The other choices blend various aspects of business structure but do not accurately capture the core difference of ownership. For instance, the claim about legal complexity does not necessarily hold true as sole proprietorships are typically less legally complex than partnerships. The idea of liability touches on another important aspect but does not frame the ownership distinction clearly. Lastly, the taxation details are misleading; both types of businesses pass income through to the owners, avoiding corporate taxes, but they are still responsible for personal taxes on their income. Thus, the correct differentiation highlighted in the selected answer emphasizes the critical functional factor of ownership in these business structures.