Commercial Applications
Answer
For the statement.
Yes, partnership is an extension of sole proprietorship. The statement can be evaluated as follows:
Expansion of Business — As the size of business expands, one person is unable to provide the necessary capital and managerial skills. Two or more persons form a partnership to carry on business by pooling their financial resources and managerial skills.
Overcoming Limitations — The partnership form of business organisation was evolved to overcome the limitations of sole proprietorship and joint Hindu family business in respect of limited financial resources and managerial skills.
Pooling of Resources — Just as a sole proprietor uses his own resources to run the business, partners pool their resources (capital, skills, and judgement) to run the business together.
Direct Motivation — Like in sole proprietorship, in partnership too, ownership and management are vested in the same persons. Every partner is motivated to work hard and ensure the success of the firm.
Flexibility — Both forms enjoy flexibility of operations and freedom from legal restrictions and government control.
Hence, partnership is an extension of sole proprietorship, formed when the business grows too large to be managed by a single proprietor.