Advantages and disadvantages of private enterprises (PEs) | iGuide

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What are the advantages and disadvantages of private enterprises?

A sole proprietorship (PPE) is one of the most popular forms of business with many advantages such as high flexibility and great autonomy. However, it also has disadvantages such as unlimited liability and difficulty in raising capital. This article will analyze in detail the advantages and disadvantages of PPE, helping you better understand this form and make appropriate business decisions.

1. Advantages of private enterprises

A private enterprise (PE) as prescribed in Clause 1, Article 188 of the 2020 Enterprise Law is an enterprise owned by one individual who is personally responsible for all activities of the enterprise with all of his/her assets.

Private enterprises have the following advantages:

- Because a private enterprise is owned by only one individual, the owner has full authority to decide on all business activities in the enterprise;

- The enterprise's capital is self-registered by the owner and there is no need to carry out procedures to transfer ownership to the enterprise (Article 189 of the 2020 Enterprise Law).

- Because the liability of a private enterprise is unlimited, it is easier to gain trust from customers and partners (customers minimize risks when cooperating).

- Private enterprises are less tightly bound by law and can control risks because there is only one person acting as the legal representative of the enterprise.

2. Disadvantages of private enterprises

- Because a private enterprise has only one owner, there is no capital contribution; it is difficult to immediately meet the need for large capital for business. And also because there is only one person, it is easy for one-sided decisions to occur; lack of objectivity.

- The fact that private enterprises are not allowed to issue any type of securities (Clause 2, Article 188 of the Enterprise Law 2020) is also a limitation on the enterprise's ability to raise capital for business.

- The owner of a private enterprise cannot concurrently be the owner of a business household, a member of a partnership, or the owner of another private enterprise (Article 188 of the 2020 Enterprise Law)

- Private enterprises do not have legal status, so they are not allowed to conduct certain transactions as prescribed by law.

- The business owner must be legally responsible for all business activities of the private enterprise.

- The owner is responsible for all of his assets. This means that if the company's assets are not enough to pay its debts and other financial obligations, the owner will have to use his own assets to settle these debts even if the company has declared bankruptcy.