A Sole proprietorship may indeed be ideal for small businesses with limited operations and budget. It is also not difficult to manage. However, the simplistic design of sole proprietorship business also does not allow for higher growth and expansion. It would not be an ideal to bring in higher investment from third parties because ownership is legally limited to one person. There may not be restrictions in appointing outsiders as employees, but there would not be a higher degree of accountability that co-ownership alone can provide. Thus, a proprietor may be inclined to explore other possibilities to bring in fresh ideas, approach and capital by changing the type of business into a partnership as partner has the right to participate in the management of the business and to share equally in profits and losses.
A Sole proprietorship business can be converted into partnership firm by drafting of partnership deed and adhering various other formalities.