Why sole proprietorships and general partnerships offer no protection at all (continued).
There are numerous disadvantages to maintaining a sole proprietorship. First, the sole proprietor will have difficulty raising capital for the business because shares of the business cannot be sold. Second, sole proprietorships (in general) are looked upon with less legitimacy, than are corporations, or LLCs. Third, hiring employees may also prove difficult considering the amount of liability at stake. Fourth, this form of business will have unlimited liability; if the business is sued, the individual proprietor is personally liable. Fifth, obtaining the requisite financing for the business may prove difficult since sole proprietorships cannot grant a floating charge, which many jurisdictions require (a floating charge is a lien or mortgage on an asset that changes in quantity and/or value from time to time (such as an inventory), to secure repayment of a loan. In this arrangement, no charge is registered against the asset and the owner of the asset can deal in it as usual). Sixth, the life span of the business is uncertain, once the owner decides to shut the business down, or dies, the entity ceases to exist. Finally, as the company becomes more successful over time, its potential for substantial liability increases.
Disclaimer: This web site is designed for general information only. The information presented at this site should not be construed to be formal legal advice nor the formation of a lawyer/client relationship. If you have questions or need specific advice relating to the matters contained herein, please contact Lovaas & Lehtinen, P.C.