The main disadvantage is that there is no distinction between the business and the business owner. If the business gets sued, since there is no distinction between the two, the business owner is sued as well. That means all of the assets of the sole proprietor are at risk when they are conducting business. In this day and age, operating as a sole proprietor is a very risky option, especially if you are successful.

From a tax viewpoint, the sole proprietor is penalized as well. They are subject to self-employment tax of 15.3% on all earned income from the business. In addition, they do not have many of the benefits available to them, such as medical reimbursement plans and certain fringe benefits. In short, they are also excluded from many of the expense deductions granted other entity types. Generally it is not advisable to operate as a proprietorship, the risk reward ratio is heavily favored to the risk side.