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2.1b Disadvantages

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(a) Unlimited liability. The sole owner’s personal assets, such as house, property, car, and investments, are liable to be seized if necessary to pay for outstanding debts or liabilities. As mentioned earlier, the proprietor and the business are deemed to be one and the same in law.

(b) Less financing capacity. It is more difficult for a proprietor to borrow money than for a partnership with various partners or a corporation with a number of major shareholders. A lender looking for security and evidence of outside resources can turn to other people connected with the business rather than to just the one person in a proprietorship. A partnership or corporation can give an investor some form of equity position, which is not available in a proprietorship.

(c) Unstable duration of business. The business might be crippled or terminated upon the illness or death of the owner. If there is no one to take over the business, it may have to be sold or liquidated. Such an unplanned action may result in a loss.

(d) Sole decision making. In a partnership or a corporation, there is generally shared decision making or at least input. In a proprietorship, just one person is involved. If that person lacks business ability or experience, poor decision making can cause the business to suffer.

(e) Taxation. At a certain level of profit there are tax disadvantages for the sole proprietor.

(f) Customer perception. Some customers and creditors may have the negative perception that your business is short term if you do not incorporate.

Start & Run a Coffee Bar

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