Limitations of Sole Proprietorship

The very features that make a sole proprietorship simple and flexible also give rise to its main limitations:

1. Unlimited liability — this is the most serious drawback. The proprietor is personally liable, without any limit, for all the debts of the business; if the business assets are insufficient, his private property can be seized to pay off business creditors. This exposes the owner to a heavy personal risk that the owners of a company do not face.
2. Limited capital — the business depends entirely on the funds one person can provide from his own savings or borrow on his personal credit. This severely limits the amount of capital available, and is often the single biggest constraint on the growth of the business.
3. Limited managerial ability — one person cannot possibly be an expert in every function — purchasing, selling, finance, and staff management alike. A sole proprietor may lack skill in some of these areas, and, with limited funds, may not be able to afford to hire specialists, so the quality of management suffers.
4. Lack of continuity / no perpetual succession — the business and the owner are legally one, so the life of the business is tied to the life of the proprietor. His death, prolonged illness, insolvency or insanity can bring the business to an abrupt end. It has no perpetual succession like a company. …