Sole Proprietor, Partnership, Joint Venture

1. Explain the different between a sole proprietor and a partnership. Refer to appropriate law.

Sole proprietor is an individual who undertakes a business activity or enterprise for profit. Any form of business undertaking such as trade, profession or occupation can be undertaken by a sole trader and sole proprietor. The sole trader is not a separate legal entity, so the trader and the business are essentially as one. Therefore, the sole proprietary has unlimited personal liability. Further, as the business is not separate from the trader, or the income of the business, the trader pays tax accordingly to the marginal tax rate based on the income they earn.^[1]

Partnerships are easy to form and set up with few formalities. Partnership is not a separate legal entity which were same as sole proprietor but, partnership have limited liability, that is, partners can be personally liable to the extent of their personal assets while sole proprietor has unlimited personal liability. For partnerships each partner is an agent for the other partners when they make or enter a contract within the scope of the partnership business.^[2]

Refer to the appropriate law, Section5(1) of the partnership Act 1958 (Vic) defines partnership ‘ as the relation which subsists between persons carrying on business in common with a view profit and includes an incorporated limited liability partnership.^[3]

1. Explain the different between a partnership and a joint venture.

Partnership involves two or more people (not more than 20) going into businesses together in order to make a profit. Partnership is a relationship but not a separate legal entity. Each partner jointly owns all the business assets and liabilities. It is vital that each partner knows their rights, responsibilities and obligations. The written partnership agreement that should state each partner’s role and level of authority, this is important because personal liability is unlimited for each and every partner in the business. If the business fail, you will be held liable for the shortfall and responsible for any debts that your partner incurs, if your partner can’t afford to pay their share of any debts incurred.^[4]

While as joint venture commonly define to an association of persons or different legal business structures through which the parties enter into a contractual relationship for the purpose of conducting a commercial activity. The activity is generally in a one off project to produce profit to be shared by the co-venturers.^[5]

Joint venture may be construed by the courts as a partnership, but there are some different between joint venture and partnership. A joint venture is often for a one-off project, whereas a partnership is usually ongoing. Joint venturers retain separate entities, rather than working mutually as partners do. Joint venturers usually get a predetermined share of the product of the venture. The formation of a joint venture does not create a separate legal entity and, thus, the venture may end once the venture, undertaking or business comes to an end. It may also terminate or end on the retirement of one of the venturers. The joint venture may also dissolve if it is deemed a partnership. The provisions that cause the dissolution of a partnership may apply to the venturers, such as bankruptcy, death, illegality, causing the finish, as per its contractual arrangement.^[6]