Risks of Sole Proprietorship

A sole proprietorship is the easiest type of business to form. There is one owner, who has complete control over every aspect of the business. As a sole proprietor, all your company's assets are yours, and all the income flows to you. But a sole proprietor is also exposed to risks that may threaten both your business and your personal finances. It's important for every business person to understand the risks involved in a sole proprietorship.

Unlimited Liability

If you're a sole proprietor, your business isn't recognized as a separate legal entity. This means that you may be held personally liable for any accidents, lawsuits or debts occurring in your business.

You can protect yourself from these type of issues by purchasing the appropriate type and amount of insurance coverage for your business.

Personal Assets

As a sole proprietor, you have no personal asset protection. For example, if you get sued in the course of conducting business, your business and personal assets may both be seized to cover your debt.

However, your personal assets aren't taken into account until the debt exceeds the assets in your business.

Capital Concerns

It may prove to be more difficult to raise capital as a sole proprietor. Your ability to borrow is based solely on your individual merit. If you have poor credit and little cash, your business may suffer. You don't have the option of issuing stock, in any form, to raise money.

Life Span

Your sole proprietorship begins and ends with you. If retire or die, your business dissolves.

Hiring Issues

Hiring employees can become complicated for a sole proprietorship. Providing benefits such as health insurance may not be possible. This makes it harder to find qualified workers. Sole proprietors are also responsible for covering their own health insurance costs.

References

• Quick MBA
• Center 4 Debt Management
• Find Legal Forms

Resources

• Slater Kennon & Jameson LLP