1. Unlimited Personal Liability

• The owner is personally responsible for all business debts and obligations
  
• Creditors can claim the owner’s personal assets, such as property or savings, if the business cannot pay
  
• There is no legal separation between the business and the individual
  
• High-risk industries may expose the owner to significant financial danger
  
• Other structures like private limited companies or LLPs offer limited liability protection
  

2. Limited Capital and Funding Options

• Sole proprietorships often rely solely on personal funds or loans for capital
  
• Cannot raise funds through equity, as there are no shares or investors
  
• Banks and investors may hesitate to provide financing without a formal structure
  
• Lack of credibility may limit access to external funding
  
• Partnerships and companies have more avenues to attract investment
  

3. No Perpetual Succession

• The business ends with the death, incapacity, or decision of the owner
  
• There is no automatic legal provision for business continuity
  
• Business relationships may be disrupted without succession planning
  
• Formal entities can continue to operate beyond the founder’s involvement
  
• Sole proprietorships lack long-term stability for generational transfer
  

4. Lack of Professional Recognition and Credibility

• Some clients, corporations, and government agencies prefer dealing with registered entities
  
• May not qualify for certain contracts, tenders, or large-scale projects
  
• Absence of formal structure can reduce perceived professionalism
  
• Registered companies have more formal governance, which inspires investor and customer confidence
  
• Branding and trust-building may be more challenging
  

5. One-Person Responsibility and Limited Expertise

• The owner is solely responsible for all decisions, operations, and management
  
• No sharing of workload, ideas, or risks with partners or the board
  
• Limited knowledge in key areas like law, finance, or marketing may affect growth
  
• Risk of burnout or inefficiency due to solo handling of all business functions
  
• Other structures allow for team-based leadership and division of responsibility