Disadvantages of Sole Proprietorship:

i. Unlimited Liability: If the business fails his liabilities may be extended not only to his capital but to some personal properties depending on the extent of the liability

ii. Limited Capital: Since capital is raised by him/her alone, he/she may not be in the position to raise enough when expansion of the scale of operation is needed benefit from economies of scale.

iii. Business Liquidation: The death of the proprietor may end the business since the successor who is likely to be a relative may not be as efficient as he/she.

iv. Lack of Credit Facilities: The sole proprietor may not have the requisite collateral needed by financial institutions before loans are given out. They thus have little access to capital to expand their businesses.

(d) Source of Finance of the Sole Trader

•  Personal savings
•  Borrowings from banks, relations and friends
•  Ploughing back his/her profits to expand the business
•  Inherited capital