Setting up a sole proprietorship instead of a private limited company may seem the easy option but it has some big disadvantages. This is one of the reasons why Blue Meg does not recommend entrepreneurs to use sole proprietorship as a form of business entity to conduct their business. Below we will explain why:
- One of the main risks is that the liability of the owner is unlimited, the finances of the owner of a sole proprietorship and the business are the same, the business owner is personally liable for all the debts and actions of the company, this means that in case of a claim or debt, the owner can lose all his or her personal assets.
- Another reason why we dissuade clients to set up a sole proprietorship is that it is not investor friendly. A sole trader has to contribute all the working capital for setting up the business as there are no shareholders.