Sole traders and partners are fully liable to the full extent of their assets in
connection with all of the business debts. In a partnership all partners have
what is known as "joint and several" liability. This means that any creditor of
the business can pick and choose between the partners as to who to pursue for
recovery of all debts. This is a major disadvantage. A company on the other hand
unlike a sole trader or partnership is able to offer security in a form of a
charge over its own assets. This form of charge is usually included within
standard security documents which banks will present to the company and which
are known as debentures. An individual cannot grant this form of security and
accordingly the scope for raising bank finance secured on the assets of the
business is substantially reduced. In the early years of the business other
substantial capital assets may not be available to grant a fixed charge to
secure credit. "Floating" assets such as stock and work in progress together
with loose pieces of equipment can be the subject of a debenture granted by a
company but there is no equivalent security document which the partnership can
issue.
Potential personal liabilities also mean that third party
investment is more difficulty to introduce into the partnership and
institutional equity capital commonly provided by venture capitalists may not be
as readily available for non-corporate businesses.