Disadvantages
Raising capital for a proprietorship is more difficult because an unrelated investor has less peace of mind concerning the use and security of his or her investment and the investment is more difficult to formalize; other types of business entities have more documentation.
As a business becomes successful, the risks accompanying the business tend to grow. One of the main disadvantages of sole proprietors is unlimited liability where the owner's personal assets can be taken away. This is particularly true for liabilities created by employees; a corporation only partially shields an owner or officer for his own actions according to the principle of piercing the corporate veil. Another disadvantage is a lack of continuity. The enterprise may be crippled or terminated if the owner becomes ill. Since the business is the same legal entity as the proprietor, it ceases to exist upon the proprietor's death. Because the enterprise rests exclusively on one person, it often has difficulty raising long-term capital.
Read more about this topic: Sole Proprietorship