What is one disadvantage of a sole proprietorship?

A sole proprietorship is a type of business entity that is owned and run by a single individual. One of the significant disadvantages of this structure is the concept of unlimited personal liability. This means that the owner is personally responsible for all debts and obligations of the business. If the business incurs debts or faces legal issues, the owner's personal assets, such as their house and savings, can be at risk to satisfy business creditors.

This characteristic can deter individuals from pursuing a sole proprietorship because the financial risks are not limited to just the business itself; they extend into the owner's personal finances. In contrast, other business structures like corporations or limited liability companies offer some degree of protection for personal assets, thereby isolating the owner from liabilities incurred by the business.

The presence of unlimited personal liability makes it crucial for potential business owners to carefully consider their choices when establishing a business structure.