Final answer:
A sole proprietorship offers ease of starting up, control, and no special taxes but poses personal liability risks. Partnerships provide combined resources and simple taxation but come with mutual liability and potential instability. Both have their advantages and disadvantages regarding management, taxation, and liability.
Step-by-step explanation:
The primary advantages of a sole proprietorship include complete control and decision-making power over the business, ease of formation, and the retention of all profits. Moreover, there are no special business taxes; the sole proprietor simply pays personal income tax on the business earnings. However, sole proprietorships have significant disadvantages, chief among them being the personal liability assumed by the owner. The owner's personal assets are at risk in the event of the business's failure, legal action, or debt.
Partnerships also have advantages, such as ease of formation and operation, combined skills and resources of the partners, and greater potential for capital compared to sole proprietorships. Additionally, like sole proprietorships, they do not incur special taxes—the income is passed through to the partners' personal tax returns. However, each partner is liable for the actions of the other partners, which can be a significant risk. Additionally, the lifespan of the partnership is dependent on the continued cooperation between partners.