What are the disadvantages of a Sole Proprietorship?
These are some of the demerits of a sole proprietorship.
- One of the significant challenges of a sole proprietorship is the unlimited personal liability of the owner. In case of the failure of the business then can easily wipe out all the personal wealth as well as affect the future of the business prospect.
- A sole proprietor has limited access to capital. It is also more difficult for sole proprietors to secure loans from Banks and financial institutions such as HSBC or Hang Seng Bank as they have unlimited liability. This means that they may only have their own personal finances to fund the business.
- The life span of a sole proprietorship is undecided and attached to the ability of the owner. That is, the sole proprietor will determine the life span of their business.
- Limited resources might pose a significant challenge to the business as the owner might not have the funds to hire managerial experts to help them in making decisions, thus posing a significant challenge for the company.
- Expanding a sole proprietorship is difficult. This means you will end up having to incorporate another entity separately. This process can limit your growth and cause more trouble in the future. Expanding overseas also allows your business to take advantage of numerous free trade agreements between Hong Kong and various markets.
- As a sole proprietorship in Hong Kong, you will be paying individual tax, rather than corporate tax. Hong Kong’s taxation system is beneficial for corporations, and this includes having zero tax for business activities conducted overseas.
One alternative to a sole proprietorship is to instead incorporate a private limited company. This will provide a separate entity from the owner of the business. This means that the owner is not personally liable for the finances of the business, and that banks and financial institutions will be more likely to loan money to the private limited company.
At Paul Hype Page, we are well versed in corporate tax planning and can help ensure you make full use of the various rebates for businesses, to ensure you do not overpay for your taxes. This includes knowledge on existing Double Tax Avoidance agreements in the region and around the world, for wherever you decide to expand your business.