What are the disadvantages of the status of an individual entrepreneur compared to the status of a legal entity?
RESPONSIBILITY FOR OBLIGATIONS
One of these “minuses” is the fact that for obligations related to entrepreneurial activity, an individual entrepreneur is liable on a general basis, i.e. all property belonging to him (Article 20 of the Civil Code of the Republic of Kazakhstan). In other words, if there are debts to the budget, suppliers, contractors and other creditors, then on the basis of a court decision, the personal property of an entrepreneur can be described and sold in order to pay off these debts. Such liability of an individual entrepreneur is unlimited. On the contrary, a member of an LLP is not liable for its debts. Within the limits of the value of the contribution made, a participant in a business partnership bears only the risk of losses. A JSC shareholder is also not liable for its debts and bears the risk of losses within the value of the shares it owns.
"UNPRESTIGIOUS" STATUS
Sometimes legal entities (especially foreign ones) are reluctant to cooperate with individual entrepreneurs. The reasons may be non-payment of VAT by the entrepreneur, the implementation of activities on the basis of a patent.
IMPOSSIBILITY OF REORGANIZATION
A sole trader cannot be "reorganized" into a legal entity, such as a limited liability partnership.
EMPLOYMENT RESTRICTIONS
An individual entrepreneur working under a patent is not entitled to hire employees.
DIFFICULTIES IN MANAGING RELATIONSHIPS WITH PARTNERS
It is difficult to combine the capitals of several persons within the framework of one entrepreneurial business. Although there is such a form of joint venture as a simple partnership, in which several individual entrepreneurs can unite, such an association is not considered a legal entity.