Disadvantages:

  • Unlimited liability – risks personal assets
  • Limited sources of finance compared to companies
  • Decision making may be slower than sole proprietorships, as more owner are involved. This may leads to disagreements and conflicts
  • High risks – sole traders have few economies of scale and therefore higher costs. They are vulnerable to competition from larger businesses with lower costs.
  • Workload and stress – owners may be ‘workaholics’ knowing that any profit is down to them
  • Lack of legal continuity – if one partner dies or leaves the partnership is legally dissolved as the Deed of Partnership is invalid. Redrawing the Deed is expensive.
  • A mistake by one partner has legal and financial consequences for all partners.

Unlimited liability, difficulties in raising finance and taxation issues may make businesses change their legal form to become incorporated.

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