Final answer:
Sole proprietorships face challenges securing funding due to unlimited liability, risking personal assets. Corporations, as separate legal entities, provide limited liability, making it easier to raise capital through issuing stock or bonds.
Step-by-step explanation:
Securing funding for a sole proprietorship can be challenging compared to other corporate entities like corporations. Given the unlimited liability that sole proprietors face, they risk personal assets in the event of the business's failure. This unlimited liability means if a sole proprietorship goes bankrupt or is sued, the owner's personal assets could be used to settle the business debts.
Contrastingly, corporations, as legal entities, limit shareholders' liability to the amount they have invested in the company. This separation between personal and business finances makes raising capital easier, as corporations can issue stock or corporate bonds, while sole proprietors often rely on personal savings or loans, which may be insufficient or risky.
Advantages of Incorporation
Incorporation provides entrepreneurs the advantage of limited financial and legal liabilities compared to sole proprietorships. This protection is crucial for raising investment, as it allows corporations to take risks without the owners fearing the loss of personal assets beyond what they've invested.