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Disadvantages of a Sole ProprietorshipSole proprietorships have several disadvantages. These disadvantagesinclude limited capital, unlimited liability, limited human resources,and limited lifetime.Limited Capital An obvious shortcoming of a sole proprietorshipis the fact that the business owner has limited access to capital. Allmoney used to finance the business must come from the proprietor’ssavings or income, or from loans obtained by the proprietor.Unlimited Liability Perhaps the biggest disadvantage of a soleproprietorship is unlimited liability. Unlimited liability means that thebusiness owner is responsible for all losses experienced by the business.Limited Human Resources As the only person responsible for thedecisions that affect the business, a sole proprietor is subject to tremendousstress. This stress is multiplied when the owner must make decisionsthat are outside his or her areas of expertise. Even if he or sheconsults an expert in such cases, the decision-making responsibility stillfalls upon the owner.Limited Lifetime Unlike a corporation, which has perpetual existence,a sole proprietorship lasts only as long as the proprietor. When theproprietor dies or chooses to sell or close the business, the company nolonger exists.Reviewing What You Learned1. What is a sole proprietorship?2. How does a sole proprietorship begin?3. What are the advantages of a soleproprietorship?4. What are the disadvantages of a soleproprietorship?Critical Thinking ActivityLicensing Requirements Why does thegovernment interfere in the formation andregulation of some sole proprietorships bycreating licensing requirements?Legal Skills in ActionThe Responsibilities of a Sole ProprietorYour Aunt Matilda, a sole proprietor, ownsa store called Scrapbook Heaven. She hasdecided to hire you and your friend Ted towork in the store on the weekends. AuntMatilda is convinced that hiring you and Tedwill not involve any new entanglement withthe government. Send Aunt Matilda an e-mailmessage that explains the responsibilities of asole proprietor who hires additional workers.Chapter 27: Sole Proprietorship and Partnership 587