Disadvantages of Sole Proprietorship
A sole proprietorship has unlimited liability. If the business lacks funds to pay obligations, the owner’s personal assets will pay the debts. The life of the business depends on the sole proprietor. If the proprietor dies, becomes ill or insolvent, the business may end.
The proprietor may lack skills and talent to efficiently manage the business, posing difficulties in growth. Raising capital can also be a disadvantage as the proprietor’s own capital and assets may be insufficient for loans, reducing the scope of business growth.
Banks prefer financing established businesses with stronger credit histories. In a sole proprietorship, the business relies wholly on the owner’s finances and credit. So lenders doubt repayment ability.
There is no government protection for sole proprietorships as they are not registered, preventing full legal advantages of an LLC or corporation. The greatest risk is unlimited personal liability as the owner could lose personal property if the business fails.