Disadvantages of Sole Proprietorship Businesses

Disadvantages of Sole Proprietorship:

Well, as there are advantages of owning your own sole proprietorship business, there are also disadvantages. My previous post stated the main advantages of having a sole proprietorship. So now, let us discuss some of the main disadvantages.

1. Some people want their business to continue on, even if something was to randomly happen to them. As we all know, life takes mysterious turns when least expected. In a sole proprietorship business, if the owner of the entity dies, so does the business.

2. As a sole proprietor, you do have the ability to borrow funds. However, since you are a sole proprietor, the funds that will be available for you to borrow can be limited. This is because in sole proprietorship's, unlike other types of businesses, the amount you can borrow is fully limited based on the owner's personal finances. A lot of times, when people are starting their own business from scratch, they might not exactly have the best credit or finances. This can be a major draw back in owning a sole proprietor type of business.

3. Seeing how a sole proprietorship business is not a type of partnership or corporation, all legal issues that the business faces are direct to and only to the owner of the business. For a lot of people, this one thing turns them off the idea of starting up a sole proprietorship. But let's be honest, if you're having fear of legal problems before your business has even started, it's most likely not an ethical idea.

4. Another disadvantage is the fact that benefits such as health care premiums are not fully deductible from your taxes. In other words, you will NOT get reimbursed for all your health care costs that are associated with your business. That's just the way it is.

Now that I've laid out some basic disadvantages of owning a sole proprietorship business, hopefully you can piece the two posts, this and the previous one, together to figure out if a sole proprietorship is the right type of business for you.

Weigh out the advantages and disadvantages, which one seems to come on top for you?
Hope this helps some of you inspiring entrepreneurs out there!

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Daniel said...

This is a great post. I will keep this information in mind when I start up my personal freelancing business. I'm thinking it will be called DLJ Web Studios. ;) I'm willing to take on the disadvantages, great article.