What is a disadvantage of a sole proprietorship?

What is a disadvantage of a sole proprietorship?

• A. The owner has complete control over business decisions.
• B. The business can easily raise capital from investors.
• C. The owner is personally liable for all losses or liabilities incurred by the business.
• D. The business has perpetual existence.

Answer: (C)

A sole proprietorship is a business structure where one individual owns and operates the business. One of the significant disadvantages of this structure is that the owner is personally liable for all losses or liabilities incurred by the business. This means that if the business faces debts or legal issues, the owner's personal assets—as opposed to just the business assets—can be at risk. For instance, if the business incurs debt or is sued, creditors can pursue the owner's personal property, such as savings accounts, homes, or cars, to settle those obligations. This personal liability contrasts sharply with limited liability structures, such as corporations or limited liability companies (LLCs), where the owners’ personal assets are typically protected from business debts and obligations. Complete control over business decisions, while it could be seen as an advantage, also places all risks and responsibilities on the sole proprietor. The challenge of raising capital tends to be more difficult for sole proprietorships, particularly because they often have limited options compared to corporations which can issue stock. Lastly, perpetual existence is not a characteristic of sole proprietorships, as the business typically ceases to exist upon the owner's death or decision to close. Therefore, the personal liability of the owner for business debts is indeed the most prominent disadvantage of a

A sole proprietorship is a business structure where one individual owns and operates the business. One of the significant disadvantages of this structure is that the owner is personally liable for all losses or liabilities incurred by the business. This means that if the business faces debts or legal issues, the owner's personal assets—as opposed to just the business assets—can be at risk. For instance, if the business incurs debt or is sued, creditors can pursue the owner's personal property, such as savings accounts, homes, or cars, to settle those obligations.

This personal liability contrasts sharply with limited liability structures, such as corporations or limited liability companies (LLCs), where the owners’ personal assets are typically protected from business debts and obligations.

Complete control over business decisions, while it could be seen as an advantage, also places all risks and responsibilities on the sole proprietor. The challenge of raising capital tends to be more difficult for sole proprietorships, particularly because they often have limited options compared to corporations which can issue stock. Lastly, perpetual existence is not a characteristic of sole proprietorships, as the business typically ceases to exist upon the owner's death or decision to close. Therefore, the personal liability of the owner for business debts is indeed the most prominent disadvantage of a