What is the primary disadvantage of a sole proprietorship?
Practice Questions
1 question
Q1
What is the primary disadvantage of a sole proprietorship?
Limited control
Unlimited personal liability
Difficulty in raising capital
Complex tax structure
The primary disadvantage of a sole proprietorship is that the owner has unlimited personal liability for the business's debts.
Questions & Step-by-step Solutions
1 item
Q
Q: What is the primary disadvantage of a sole proprietorship?
Solution: The primary disadvantage of a sole proprietorship is that the owner has unlimited personal liability for the business's debts.
Steps: 4
Step 1: Understand what a sole proprietorship is. It is a type of business owned and run by one person.
Step 2: Recognize that in a sole proprietorship, the owner is personally responsible for all the business's debts.
Step 3: Realize that 'unlimited personal liability' means if the business owes money, creditors can take the owner's personal assets (like their house or savings) to pay off those debts.
Step 4: Conclude that this risk of losing personal assets is the primary disadvantage of being a sole proprietor.
