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3 disadvantages of a sole proprietorship

On Behalf of | Jan 11, 2023 | Business Formation & Planning

Choosing the correct business entity is one of the key decisions to make when starting a business. Many people choose a sole proprietorship because it is easier and cheaper to set up than the alternatives.

However, are good reasons many choose other ways to register a business. There are trade-offs you need to consider before opting for a sole proprietorship. Here are some of them:

No one to share ideas or responsibilities with

It might feel great not having to consult anyone else about how your run your business. Yet there will be times when you could use the help. While you can hire advisors, someone who is as invested in the business as you are can be advantageous.

You risk your personal assets if the business has problems

Your family home, your car and the contents of your bank account could all be at risk if your business has a legal problem. In a sole proprietorship, you are your business, so people who have an issue with the company can sue you. It is one of the key reasons people use more complex business entities – to limit their personal liability in the event of problems. The separation can free you to take risks you might not dare if you know a misjudgment could leave your family homeless.

Others might consider you too informal

Business is sometimes about appearances. In the same way that having a fancy job title may help get people’s attention, registering as something other than a sole proprietorship may help convince people you are serious. Consider legal help if you are unsure about how to form your business.

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