What is a disadvantage of being a sole trader?

Being a sole trader means that an individual runs their own business without partners. One significant disadvantage of this structure is the concept of unlimited liability. This means that the sole trader is personally responsible for all debts and obligations of the business. If the business incurs debts or is sued, the owner's personal assets (like savings, property, or vehicles) can be at risk to satisfy business debts.

This is a critical factor for many individuals considering operating a business as a sole trader, as it adds a level of financial risk that does not exist in other business structures, such as partnerships or corporations, where liability can be limited to the extent of the investment made in the business.

In contrast, having limited decision-making authority is more characteristic of partnerships or corporations where decisions are shared amongst multiple parties. Shared profits pertain to partnerships, and access to additional funding sources is often more favorable in business structures that allow for multiple investors, like corporations. Thus, the disadvantage of unlimited liability is unique and significant for sole traders.