Question

Demerits of sole proprietorship form of business organisation.

Answer 1

Unlimited liability
Self management
Risk of Insolvent(in case of accident)

Answer 2

Unlimited Personal Liablility

There is no legal distinction between the business and owner in a sole proprietorship, and therefore any assets owned by either are financially at risk. Debts, losses or lawsuits that can't be paid by the business will need to be covered by the owner even if that means using personal assets, including his home.

Limited Ability to Raise Capital

Sole proprietorships are unable to sell interest or shares in the business as a means of raising money. They also lack the clout other forms of business structure carry, making it more difficult to obtain loans and other funding resources.

The sole proprietorship is the easiest and least expensive way to start a business compared to partnerships and corporations. But because the owner and the business are legally viewed as the same entity, forming a business as a sole proprietor carries with it certain financial risks and limitations.

Unlimited Personal Liablility

There is no legal distinction between the business and owner in a sole proprietorship, and therefore any assets owned by either are financially at risk. Debts, losses or lawsuits that can't be paid by the business will need to be covered by the owner even if that means using personal assets, including his home.

Limited Ability to Raise Capital

Sole proprietorships are unable to sell interest or shares in the business as a means of raising money. They also lack the clout other forms of business structure carry, making it more difficult to obtain loans and other funding resources.

Limited Expertise and Growth Potential

Sole proprietors are in charge of every aspect of the business, including product and service development and delivery, marketing, accounting and customer service. Most sole proprietors are knowledgeable about their business product or service, but have limited knowledge or experience in the other areas. This lack of expertise can slow and even limit growth. Further, there is only so much a single person can accomplish. At some point, owners max out the amount of time they can spend on business activities and can't grow without adding more manpower to the business.

Limited Life Expectancy

The success of most sole proprietorships is so closely tied to the owner that the business may be unable to survive the loss of the owner through illness or death. While sole proprietorships can be sold or transferred to heirs, they often struggle to survive because the new owners lack the knowledge to keep them going or the customers' loyalties were to the original owner and not the business.