Financing the Business
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.