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Partnership or Sole Proprietor – Which is a Better Model for Daycare Centres?

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This article addresses the similarities and differences between a sole proprietorship and partnership as well as the advantages and disadvantages of the two.

Content:

Are you fretting over whether you should start the daycare centre on your own or with a partner? To make an informed decision, you first need to understand how both business ownerships differ. Whilst both are fairly simple forms of ownership and ideal for small businesses, it has its advantages and disadvantages.

Let’s start with sole proprietorship. It is a very simple model. You just walk into the company registration authority to register your daycare business. The owner and the company are not separate legal entities, which means that you and the daycare centre are considered as one entity for tax and liability purposes. The daycare centre and you are jointly responsible for all debts related to the business.

As for partnerships, there are 2 different types. One is general partnership whilst the other is private limited. Like sole proprietorship, a general partnership is also very easy to set up, simply walk into the company registration authority to register your daycare business. And like in a sole proprietorship, the daycare centre and partners are not separate legal entities. Which means all the partners are responsible for any debts incurred by the daycare centre. For example, if the daycare business incurred a debt of $30,000 and the partners decided to wind up it up due to lack of capital, all the partners are liable to pay off the debt with their own personal assets, unless they choose to declare bankrupt. Unlike in a private limited partnership, the partners and daycare business are considered separate legal entities and are therefore not liable to pay off any debts with their own personal assets. However, unlike a general partnership, it is a little more complicated to set up and will entail depositing and maintaining a certain amount of money in the bank which acts as a guarantee. The plus side is suppliers, because of the forced deposit in the bank, tend to be more inclined to offer private limited companies better credit terms than a general partnership.

There are however a few differences. As a sole proprietor, you are the boss and therefore have the absolute say in the daycare business. It also means that you will need to undertake all the risks, costs and responsibilities by yourself. In a partnership, however, all the risk, cost and responsibilities are shared as all the partners are bosses. Which also means that the running of the daycare business will need to be by general consensus to ensure that all the partners are kept happy.

There is no one best business ownership model as both of them carries with them its own form of risk and returns. Some prefer the freedom of a sole proprietorship whilst others feel more secure in numbers. Even in partnerships, some prefer the simplicity of a general partnership whilst others prefer the security of a private limited partnership. Which form of business ownership you ultimately enter into is highly dependent on your personal risk appetite and resource.

Author: Seraphina Tan

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For more essential information and resources on starting a successful daycare business, please visit www.setupadaycare.com.

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