Knowledge Center

Jul 24
Disadvantages of Sole Proprietorship
Posted by:MyEfilings
Disadvantages of Sole Proprietorship

Proprietorship is one of the most common and oldest forms of business in India. Sole Proprietorship is very easy to start and there are minimum compliances. This makes it one of the most popular types of business in India. However more and more people are opting for LLP, Private Limited and One Person Company (OPC) nowadays as there are many disadvantages of Proprietorship over these types of businesses.

Major disadvantages of Sole Proprietorship business:


Proprietor is the person who manages the business of Proprietorship Concern. He is the person who is responsible for all the business transactions, administration etc. All the business and tax registrations are in the name of Proprietor. It is very difficult to transfer the business as going concern to the legal heirs. All the Business Licenses and Tax Registrations cannot be transferred in the name of legal heir.

Limited Capital

The capital of Proprietor and Sole Proprietorship Concern is same. The Proprietor has to run his Proprietorship concern with limited capital available with him. He cannot raise share capital by issuing shares like a Private Limited or add Partners like a Partnership Firm. Funding from banks is also limited as the there is no distinction between assets of Proprietorship and that of Proprietor.

Unlimited Liability

Proprietorship Concern is not a separate legal entity. The assets and liabilities of Proprietor and Proprietorship Concern are same. Since Proprietorship Concern is not a separate legal entity, the Proprietor is liable for all the liabilities of the Proprietorship Concern unlike Private Limited Company, LLP or Public Limited Company where liability of member is limited to his share capital.

 Perpetual Succession

Proprietorship Concern is not a separate legal entity and all the business and tax registrations of the Proprietorship are in the name of its Proprietor. The business of Proprietorship Concern comes to an end in the event of death of Proprietor unlike Private Limited Company, LLP or One Person Company.

Proprietorship may or may not be a suitable business type for you. Contact us to find most appropriate form for your business and get started quickly.


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