What is the main drawback of a sole proprietorship?

• A. They Have Unlimited Personal Liability
• B. They Are Easy to Create
• C. They Require a Partner
• D. They Are Responsible to Shareholders

Answer: (A)

In a sole proprietorship, the owner and the business are one legal entity, so there’s no separation between personal and business assets. The main drawback is unlimited personal liability: the owner can be personally on the hook for all business debts and obligations. If the business can’t pay its bills or is sued, the owner’s personal assets—home, savings, or other resources—could be at risk. This lack of liability protection is the trade-off for the simplicity and ease of getting started.

Producing the business is easy and doesn’t require partners, which are advantages. Being responsible to shareholders describes corporations, not sole proprietorships, so that idea doesn’t fit this structure.