How does a sole trader differ from a partnership?

A sole trader is a single-person business, while a partnership involves two or more people sharing ownership and responsibilities.

A sole trader, also known as a sole proprietor, is an individual who owns and operates a business on their own. This is the simplest form of business structure and gives the sole trader complete control over the business decisions. The business and the owner are considered as one entity for tax and liability purposes. This means that the owner is personally responsible for all the business's debts and liabilities. The profits of the business are considered as the owner's personal income and are taxed accordingly.

On the other hand, a partnership is a business structure where two or more individuals share the ownership of the business. Each partner contributes to all aspects of the business, including money, property, labour or skill. In return, each partner shares in the profits and losses of the business. Partnerships can be more complex because they require a partnership agreement that outlines how the partnership will be run, how profits and losses will be shared, and how disputes will be resolved.

In terms of liability, partners are personally liable for the business's debts and liabilities, similar to a sole trader. However, in a partnership, each partner is also liable for the actions of the other partners. This is known as joint and several liability.

In terms of taxation, partnerships are not taxed as an entity. Instead, each partner includes their share of the partnership's income or loss on their personal tax return.

In summary, the main difference between a sole trader and a partnership lies in the number of owners and the way responsibilities, profits, losses, and liabilities are shared. A sole trader has full control and responsibility, while in a partnership, these are shared among the partners. Both structures have their own advantages and disadvantages, and the choice between the two will depend on the specific circumstances and objectives of the business owners.