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Be aware of these four risks of starting a sole proprietorship

On Behalf of | Sep 8, 2023 | Business Law |

You have a lot of options when it comes to choosing a structure to support your new business. While each type has its own benefits, each also has drawbacks that may impact your business operations moving forward. To mitigate those risks as much as possible, you should carefully vet your structure options so that you choose the one that’s best for you.

The risks of a sole proprietorship

Many small business owners choose a sole proprietorship so that they can avoid many of the formalities associated with creating a startup and retain control over all business decisions. While these certainly are major benefits, if you’re considering this business structure then you’ll also want to be cognitive of the following limitations:

  1. You’ll be personally liable for the business’s debts, which means that business failure can lead to financial struggles and even ruin in your personal life.
  2. It can be more difficult to secure funding as lenders and investors will probably want to see a more formal structure type before issuing large loans or handing over significant investments.
  3. You might struggle to secure larger contracts with other entities who are looking for a reliable business deal and who want to avoid the perception that you’re working as their employee.
  4. Being solely responsible for your business can put strain on other aspects of your life, including your marriage, given that a lot of your time will be devoted to your business.

Is it time to consider other business structure options?

There’s certainly a lot to take into account when you’re getting your business off the ground. To ensure that you make the decisions that are best for you and your business, you need to be as fully informed as possible. That’s why we encourage you to read up on the various business structures available to you.